If you are planning on selling a construction company, there are a few important tips to consider. Some of these tips are common to selling any type of business, and others are specific to selling a construction company. Through decades of experience buying and selling businesses across many industries, we have identified five key tips for successfully selling a construction company:
1. Consider what goes into a business valuation.
For a number of reasons, it is essential that you possess a fair and accurate accounting of your construction company’s value; a professional business appraisal is particularly important when attempting to sell your business. A valuation document is the single most useful piece of financial information about any company, so it requires an accurate and comprehensive approach. A professional valuation of your construction company will require:
- Past 3 years Federal Tax Returns
- Last 3 years Profit and Loss Statements (P&L), including balance sheets
- Interim Profit and Loss Statement (P&L), including balance sheet and a year-to-date comparison for the same period last year
- Average value of inventory of saleable product on hand at any time of year
- Equipment List
- Copy of tax bill on real estate, if the real estate may be included in the sale
- Copy of any real estate appraisal that is available
- Lease information
2. Learn how to maximize a construction company valuation.
We have sold more than 600 businesses over the past 20 years, so we have seen what factors tend to increase or decrease the value of a business. The good news is this: if you are not satisfied with the results you received from entering the aforementioned numbers into standard market multiples, there are actionable steps you can take to improve the value of your construction company.
In 2018, roughly nine in ten American adults used the internet, including 96% of 30- to 49-year-olds and 80% of 50- to 64-year-olds. Your prospective customers are online. Are you? It is critical that your construction company has a website and also claims all social media pages, including pages on sites such as Angie’s List and Yelp. According to a recent survey, 87% of consumers read online reviews for local businesses in 2020, up from 81% in 2019. Claiming pages on review sites and directing satisfied clients to those pages to leave reviews will build trust in your local market and set your business apart as a reputable company.
Your inventory value is a significant part of your construction company’s worth. To ensure a top sales price, make sure your equipment is in the best condition possible prior to a business valuation. Yes, equipment upkeep is expensive, but you will get that money back when the deal closes. Take the time now to ensure your equipment stays on schedule for routine maintenance, that repairs are being completed, and that equipment is replaced when necessary. If you are still a few years away from selling, now is the time to remember that it is wise to spread maintenance costs over the lifespan of the piece of equipment rather than scrambling to complete repairs while you are preparing to sell. Equipment value is particularly important in the construction industry, and an impressive inventory will not only increase the sales price of your business but will also attract more buyers.
Having a strong management team in place is one of the most overlooked value boosters for any business. Why? Because when the owner is heavily involved in the details of the company including operations and client relationships, it can be extremely difficult for a new owner to transition into the business. This is a high-risk situation for most buyers as they consider the potential fallout from the owner’s exit. For example, if you as the owner manage most of the large accounts, since those customers are only familiar with you, it can be problematic for a buyer to step in and take those accounts over or at least keep the same relationship. This is an extremely common issue, and If you recognize this problem within your construction company, do not worry. It can be fixed. The solution is to build out your management team, or perhaps to better empower the management team you already have. Once that team is established, it is time to begin transferring your responsibilities. Then, when the new owner comes on board, the transition will be virtually seamless.
3. Consider the reason why you are selling your construction company.
There are many reasons to sell a business. Why you are selling your business will help inform how to sell your business.
You have determined it is time to retire. Perhaps it will be a family succession, or you want to give an employee the opportunity to buy the business, or you are dissolving a business partnership; regardless, it is essential that you work with an experienced partner to ensure a smooth transition, maintain business continuity, and preserve your business legacy and reputation.
You have another investment opportunity you want to take advantage of, but you are not ready to retire from the construction business. You are still committed to the growth of your company, but you would like to free yourself up enough to invest in another business or project. Here, a strategic buyer like a private equity firm may be interested. In this case, you maintain income and benefits, likely even a minority stake in the company, but reduce exposure and gain financial security.
Life has presented you with circumstances that demand an influx of cash. You are not ready to launch an exit strategy, but you need to liquidate. Again, finding a strategic buyer opens up valuable options. Look for an upfront liquidity event that allows you to keep your job and ideally offers you a minority stake in the business. This provides your financial security along with long term income and growth opportunities.
4. Evaluate when it may be the best time to sell a construction company.
Simply put, the best time to sell your construction company is when it is doing well. This really applies to any business, counter intuitive as it may seem. If your construction business is trending up, it is normal to assume that if you wait a little longer, you can get even more for your company. Sadly, we have seen that rationale end in a great deal of regret for many sellers we know. These owners often encountered an unforeseen circumstance like a change in their health, the loss of a key client, or an unfortunate turn in the economy or business operations.
We understand the heartache and frustration that comes with this type of situation, especially after years of pouring blood, sweat, and tears into a business. A confidential, professional business valuation provides essential information that helps indicate the best time to sell a company. As we have all been reminded in the past year, we cannot see what the future holds. So, we must focus on what we do know, and financials are the best evidence of where your construction company is going. Timing is key; you do not want to look back and wish you had acted sooner.
5. Identify who can help you sell your construction company.
When you understand the financial and operational aspects of your business, you can identify where you are succeeding and where you may need to improve to reach your ultimate goals. As we have already mentioned, selling a construction company begins with an accurate, comprehensive business valuation. Also, when considering the various reasons for wanting or needing to sell, it is advantageous to utilize a business broker or advisor with a large network of potential buyers. All of this is where Viking M&A comes in. We put our clients first and ensure the most successful transitions and lucrative exits for our clients. Utilizing a proven approach to business valuations, our advisors have almost nine decades of combined experience buying and selling businesses. Our closing rate is 4x the industry average, and businesses we represent sell for, on average, 96%+ of their asking price.
Viking Mergers & Acquisitions can help you understand the process of selling a construction company, where your business stands today, and how far you need to go to achieve your goals. Whenever you are ready, we are here to help. Contact us today for a no-cost, no-obligation business valuation.
1 Editorial Staff, November 18, 2019. 50+ Contractor Digital Marketing Statistics (2020), Blue Corona, https://www.bluecorona.com/blog/contractor-digital-marketing-statistics/
2 Murphy, R., December 9, 2020. Local Consumer Review Survey 2020, Bright Local, https://www.brightlocal.com/research/local-consumer-review-survey/