If you're considering selling your construction company, you're not alone. There are many reasons why business owners decide to sell, whether it's to retire, dissolve a partnership, or pursue new opportunities. However, selling a small "Mom & Pop" construction company can be challenging, especially if you're the sole owner and operator. If you're ready to move forward with the sale, there are several steps you'll need to take to prepare your business and find a buyer. In this blog post, we'll provide some tips and guidance to help you successfully sell your construction company.
Step 1: Choose an Experienced Business Broker with Expertise in the Construction Industry
Selling a construction company is a complex process that requires careful planning and execution. One of the most critical steps is finding a reputable business broker to help you navigate the sale. While you may be tempted to sell the business on your own to save money, it's usually not the best approach. Going it alone can result in significant pitfalls that can ultimately cost you more in the long run.
For example, finding a buyer with enough cash and credit to purchase your construction company can be challenging. Even if you manage to identify a potential buyer, they may be hesitant to take out a loan to buy your business. Additionally, trying to sell your company to a competitor can also lead to low offers, particularly if the news that your business is for sale becomes public.
That's where a reputable full-service business brokerage firm like Sunbelt Atlanta can help. Sunbelt Atlanta understands the complexities of selling a construction company and has the experience and expertise to ensure a successful transaction. They keep the news that your company is on the market confidential, ensuring that only interested buyers who have signed a non-disclosure agreement are aware that your business is for sale.
Moreover, Sunbelt Atlanta ensures that any potential buyers for your business have the financial capability to do so. They represent sellers exclusively, handling everything from start to finish, and they do not charge any up-front retainer fees. When working with a business broker, it's essential to choose one like Sunbelt Atlanta that has a proven track record of success, a deep understanding of the construction industry, and a network of potential buyers.
Step 2: Key Factors that Determine the Value of Your Construction Company
Determining the value of your construction company is an essential step in the sale process. An accurate and comprehensive Opinion of Value is crucial to arrive at a fair selling price for your business. A business broker can help you with this process, which involves researching the market list price for comparable businesses and evaluating various factors that impact the value of your construction company.
While market research is a crucial component of the Opinion of Value, it's not the only consideration. A business broker will evaluate all aspects of your business, including financial records, assets, brand name, website, equipment, facilities, and geographic location, among others. This process takes several hours and may not always please a hopeful buyer. However, it's crucial to arrive at a fair and accurate selling price.
Several factors determine the value of your construction business, such as real estate or property owned by the business, the condition of any equipment owned, customer information, brand presence, current and future revenue projections, detailed and accurate financial records, the management team and employees, geographic location, customer analysis, marketing efforts, and safety record. Each of these factors plays a crucial role in determining the value of your business.
To arrive at an accurate and comprehensive Opinion of Value, you'll need to take several steps before approaching a business broker. These include gathering and organizing your financial records, analyzing your customer base and marketing efforts, and evaluating your equipment and facilities' condition. It's also essential to assess your brand presence and intellectual property and consider any real estate or property you own. By taking these steps and having a clear understanding of your business's value, you can ensure a smooth and successful sales process.
Documents and Information Required for Business Valuation
To sell your construction business for a fair price, you'll need to provide a significant amount of documentation to your business broker as part of the Opinion of Value process. This process includes an in-depth evaluation of various aspects of your business, such as financials, equipment, facility, employees, safety record, and customers.
Starting with financials, you'll need to present accurate and detailed financial records, tax and credit history, profit and loss statements, and other relevant accounting documents. A potential buyer will be wary of a business with sketchy financials, so it's essential to provide a full picture of costs and earnings, including breakdowns of material and labor costs and any recurring fees such as union or license fees. It's also crucial to present at least the past three years of tax returns and profit and loss statements and the current year's profit and loss statement comparing the company's current performance against the same time from the previous year.
Equipment is one of the most crucial factors to consider when selling a construction company. The equipment owned by the company is often an essential asset and is essential for the business's operations. The value and condition of the equipment can significantly impact the business's overall value and potential for future growth.
When preparing to sell a construction company, it's important to provide potential buyers with a comprehensive list of all the equipment and tools owned by the company and their estimated value. Additionally, any information on the condition of the equipment and maintenance records should be made available. This information can help buyers assess the company's equipment value and help them make informed decisions.
If the equipment has been well-maintained and is in good working condition, it can add value to the company. In contrast, if the equipment is outdated or in poor condition, it can decrease the business's value, and buyers may factor in the cost of replacing or repairing the equipment in their purchase decision.
It's also important to document any leased equipment, including the terms of the lease and any associated costs. Lease agreements can often affect the business's financial statements, so it's essential to make potential buyers aware of any lease agreements.
In summary, the equipment is a critical factor to consider when selling a construction company. The condition, value, and maintenance records of the equipment can significantly impact the business's value and potential for future growth. Providing detailed information on the equipment, including ownership, maintenance records, and lease agreements, can help potential buyers make informed decisions and increase the chances of a successful sale.
Facilities and real estate are critical components to consider when selling a construction company. The facilities and real estate owned or leased by the company can have a significant impact on its value and the potential for future growth.
If the company owns the facilities, it's important to have a real estate appraisal and provide potential buyers with copies of the property tax bill. Buyers will want to know the property's market value, location, and the condition of the building(s). A well-maintained and strategically located property can increase the value of the business and the potential for future growth.
If the company leases the facilities, it's important to document the costs, show the terms and conditions of the lease, and provide details of any improvements made to the space. Buyers will want to know if the lease is transferable, if there are any restrictions, and if the lease rate is competitive.
Real estate also includes any land or property owned by the company that's used for storage, parking, or any other business operations. The potential for future development or expansion can be a significant selling point for buyers, especially if the property is located in a desirable area or if it's zoned for commercial or industrial use.
The facilities themselves are also an important consideration when selling a construction company. Buyers will want to know if the company has the necessary equipment, storage space, and other resources to carry out its operations. This includes the condition of the equipment and the costs associated with maintaining and replacing it. A well-maintained and fully equipped facility can increase the value of the business and provide a competitive advantage in the market.
Employees play a crucial role in the success of a construction company and are an essential factor to consider when selling the business. Potential buyers will want to know if the company has an experienced and dedicated team of employees that can help maintain the business's operations after the sale.
The structure of the employee base is also an important consideration when selling a construction company. Buyers will want to know if the business owner handles all the contract negotiations or if there is a manager or management team involved in acquiring contracts. They will also look at the age and salaries of the managers and employees and evaluate if there's a team in place to acquire new contracts or whether that responsibility will fall to the new owner.
The reputation of the construction company and its employees can also have a significant impact on its value. If the company has a strong team with a good reputation in the industry, it can increase the business's value. A skilled and experienced team can provide continuity of service to clients and ensure that the quality of work remains consistent, even after a change in ownership.
In contrast, a high employee turnover rate or a lack of skilled employees can decrease the value of a construction company. It can also raise concerns about the company's ability to maintain contracts and deliver projects to clients.
When selling a construction company, it's important to provide potential buyers with detailed information about the employees, including their experience, salaries, and roles within the business. It's also essential to demonstrate that the company has a skilled and dedicated team in place and that it can continue to provide quality services to clients after the sale.
A strong safety record is an essential factor to consider when selling a construction company. Buyers looking to purchase a construction business want to ensure that the company has a good safety culture, policies, and procedures in place to prevent accidents, injuries, and fatalities. This is because safety is a critical concern in the construction industry and can impact the company's profitability and reputation.
Having a good safety record can improve the value of a construction company because it demonstrates that the business has taken safety seriously and invested in the necessary resources to maintain a safe work environment. This can include providing safety training to employees, implementing safety protocols, and ensuring that safety equipment is up to date and in good working condition. A strong safety record also shows that the company is committed to protecting its employees and reducing the risk of accidents, which can result in lower insurance premiums and liability costs.
On the other hand, a poor safety record can negatively impact the value of a construction company. A history of accidents or safety violations can lead to higher insurance premiums, regulatory fines, and legal liabilities. It can also damage the company's reputation and discourage potential buyers from considering the purchase.
You’ll also want to document your customers and how you’ve acquired them. Do you have a healthy mix of old and new clients or has your business mainly been sustained by working with a handful of repeat customers? If you have a Marketing Plan, business website, or business social media pages, you’ll want to provide details on each of these. The cost of hosting and maintaining the website won’t be of much interest, but what you want to show here is that you have the means of attracting new business. If your company has earned strong reviews, showcase these because it will give potential buyers confidence that your business has a strong brand and community presence. If your business has won awards or sponsored community events, you’ll also want to detail this because it helps show that your business is visible in the area.
As you can see, many factors are weighed to determine the value of your construction business. Be as comprehensive as you can be when providing information about your business to your broker; it will help them determine a fair price for your business. And, it may even turn out to be worth more than you thought.
When to Sell Your Construction Business
Selling your construction business can be a significant decision that requires careful consideration. Determining the best time to sell your business can be challenging, and many factors come into play. While it may be tempting to sell when sales are plummeting, it's not always the best approach. Ideally, you should sell when profits are steady or rising to maximize your selling price.
However, circumstances such as declining health or changes in the business landscape may necessitate a sale. In these situations, it's essential to prepare thoroughly for the sales process. This means presenting a complete and accurate picture of your business to your broker to increase the likelihood of a successful sale.
There are other factors to consider when deciding when to sell your construction business. For example, you may want to sell when the market conditions are favorable or when interest rates are low. Another consideration is your retirement plan or the pursuit of other opportunities. If you're ready to retire or explore new ventures, selling your business can provide the financial resources to do so.
Ultimately, the decision to sell your construction business is a personal one. It's important to consider all the factors involved and determine what's best for you and your business. Once you've made the decision to sell, you'll need to work closely with a business broker to ensure a smooth and successful sales process. By presenting a complete and accurate picture of your business and working with a reputable broker, you can increase your chances of a successful sale.
Ready to Take the First Step?
In conclusion, selling your construction company can be a challenging decision, but it doesn't have to be a painful process. Working with a reputable business broker like Sunbelt Atlanta can help you navigate the process with ease and get the most money possible in the least amount of time and risk.
At Sunbelt Atlanta, we have a team of experienced professionals who have closed hundreds of transactions for businesses in various industries, including the construction industry. We're committed to evaluating your business, determining a fair price, and connecting you with potential buyers around the globe.
Whether you're ready to retire, dissolve a business partnership, or pursue another opportunity, we're here to help you every step of the way. Contact us today to learn more about how we can help you sell your construction business and achieve your goals.