Construction trades businesses often have specialized features that require extra care when preparing for a sale. Here are some things to consider when selling a construction business.
Construction trades business owners are often heavily involved in the day-to-day operational aspects of running their businesses. While it’s great to keep your hand on the wheel and be involved in every project, too much direct owner involvement could create problems when you want to sell. If you are the person in your company that has the relationships with key customers, potential buyers might be afraid that your customers could use the change of ownership as a reason to try out competing firms. This might cause the buyer to shy away from making an offer or reduce the value he places on your business.
To solve this problem, when you are beginning to think about selling, it’s a good idea to beef up your management team and start transitioning key customer relationships to your employees. This way, when the change in ownership occurs, it will be seamless from the point of view of the customer. The same employee who dealt with the customer on Friday before the transition will deal with the customer on Monday with the new ownership in place.
Backlog of Work
If your construction trades business is service-work oriented, then having a pipeline of signed work isn’t usually an issue. Your jobs come in on a day-to-day, as-needed basis. But, on the other hand, if your company is largely project based, a strong backlog of signed work is critical to having a successful sale.
You might have a history of doing $20 million dollars a year in revenues. Which is great. But when a new owner comes in, he wants to know that the historical revenue trend will continue – at least for the near future. You need to have a strong backlog that shows the buyer (and his lender!) that there are profitable jobs on the books that will continue to bring in revenues and pay the bills.
Not only will you need a strong Work-In-Progress (”WIP”) report, you should also create a report that tracks projects that you have bid on (broken out by how likely you are to be awarded the project) and projects that you are tracking to bid. This way the buyer can gain some visibility into what your business will look like a few years down the road and gain confidence that he can continue the company’s success into the future.
It’s easy to get caught up in the operational day-to-day issues of running a business and to neglect the less than glamorous work of making sure that all of your documentation is in good order. Owners accustomed to rolling up their sleeves getting work out the door sometimes don’t focus enough on keeping financial and other records in perfect order. Buyers (and lenders) however, will want to see employee and operational manuals, financial records, regulatory compliance records, licenses, etc. all up-to-date and accurate.
Selling a construction trades company isn’t a task that every business broker can accomplish. There are industry-issues that only a broker experienced in selling construction trades businesses will understand.
Work with an experienced construction broker to assure a successful sale of your business.