There might be many reasons why you’ve decided it’s time to put your construction business up for sale. Perhaps it’s time to retire. Perhaps you want to dissolve a business partnership. Maybe you’ve decided to pursue another opportunity and the profit from the sale will allow you to do so. Whatever the reason is behind the decision, here are some tips on what you need to do to move forward.
It can be tricky to find a buyer for a small construction company. These “Mom & Pop” contracting companies are often operated by the owner/founder. If you’re the sole owner and it’s your name alone on the business license and the permits that allow you to legally operate, you’re ready to begin the process of preparing your construction company for sale. If you have partners whose names are also on the business license, they all must agree to sign a business sales agreement to begin the sale process.
Step #1: Find a Reputable Business Broker
If you’re going to try to sell the business all on your own, expect many pitfalls. You’ll need to find a buyer with enough cash and credit who wants to take out a loan to buy your business. You won’t be able to hide the fact that your business is for sale. You might try and sell your company to a competitor, but once the news gets around that your company is for sale, you’re likely to receive only low offers.
That’s why many construction companies turn to a reputable full-service business brokerage firm like Sunbelt Atlanta. With Sunbelt Atlanta, the news that your company is on the market remains confidential. Any interested buyers must sign a non-disclosure agreement, agreeing not to reveal that your company is for sale. And Sunbelt Atlanta makes sure that any potential buyers for your business have the financial capability to do so.
Sunbelt Atlanta only represents sellers, handling everything from start to finish. Whatever business broker you choose to work with, make sure you work with one like Sunbelt Atlanta that doesn’t charge any up-front retainer fees.
Step #2: Factors that AFFECT the Value of your Construction Company
Any successful sale begins with an accurate, comprehensive Opinion of Value to arrive at a selling price for your business. To arrive at an Opinion of Value, a broker begins by researching the market list price for businesses comparable to yours. A Broker’s Opinion of Value takes several hours to put together and won’t always please a hopeful buyer. The Opinion of Value isn’t only based on this research, however, it considers all phases of your business, from financial records and assets to brand name, website, equipment, facilities, and geographic location.
The following factors all help determine the business value of your construction business:
- Any real estate or property owned by the business. This includes intellectual property such as architectural copyrights
- 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
- Safety record
As you can see, there’s a lot to consider to come up with a fair price for your business.
Before you approach a business broker and undergo an Opinion of Value for your construction business, here are the steps you will want to take.
Step #3 What you’ll need to provide for the Opinion of Value
The construction industry has a lot of complexity, and to sell your business for a good price, you’re going to need a lot of documentation. Let’s begin by going over the financial details you’ll be asked to present.
Financial records, tax and credit history, profit and loss statements, and other relevant accounting documents will be closely examined. They must be accurate and detailed. A potential buyer will be wary of a business with sketchy financials. You’ll want to present a full picture of costs and earnings, including breakdowns of material and labor costs, and any recurring fees such as union or license fees. If you have any outstanding debts, try to reduce them or pay them off as much as possible before selling the business.
You’ll need to present at least the past three years of the company’s tax returns along with the last three years of profit and loss statements. You’ll also need to present the current year's profit and loss statement comparing the company's current performance against the same time from the previous year.
Serious buyers will examine the profit margins on completed and current contracts. If there’s not a great variation in what you forecasted and what your company earned on the completed contracts, buyers will be better able to get a clearer assessment of the profit potential of your business.
Be prepared to discuss how your contracts were acquired. A potential buyer will also want to know if current and future contracts can be transferred to a new owner without the client having to approve the transfer.
You’ll need to list any equipment and tools owned by your construction company and their estimated value. If you can show that you’ve kept your equipment and tools in good condition by providing service and repair receipts, that may help indicate that you’ve appraised these saleable items properly.
If you lease your equipment, you’ll need to document all costs and show the terms of the lease.
If you lease office space or lease a building to store your equipment, you’ll need to document the cost(s). If you lease a facility, you’ll need to show the terms and conditions of the lease.
If you own an office or building, get a real estate appraisal. And, you’ll need to show copies of your property tax bill for any real estate owned by your construction business.
Your employees factor into the Opinion of Value process. Potential buyers will look at the structure of your construction business and the salaries of your employees. You’ll be asked whether you as the business owner handle all the contract negotiations or whether you have a manager or management team that’s also involved with acquiring contracts. Potential buyers will look at the age and salaries of your managers. They’ll want to know whether or not there’s a team in place to acquire new contracts or whether that responsibility will fall to the new owner.
When preparing for an Opinion of Value, you’ll also want to note the cost of any construction workplace safety training that you’ve provided for your employees. A strong safety record will improve the value of your business.
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
Of course, the best time to sell any business is when profits are steady or are rising, not when sales are plummeting. Many owners decide to sell once a business begins to decline or they suffer from an unfortunate change in health. No matter when you decide to sell or what the circumstances are, this remains true: the better you can present a complete and accurate picture of your business to your broker, the better the chance will be for a successful sale.
Ready to Take the First Step?
The decision to sell a construction business that you’ve worked so hard to build is a difficult one. Selling it doesn’t have to be a painful process. Our team at Sunbelt Atlanta is ready to help you every step of the way, from evaluating your business to signing the final documents.
We help clients sell their business for the most money possible and the least amount of time and risk. We’ve closed hundreds of lucrative transactions for companies in many industries, and we’ll place your business in front of a multitude of dealmakers across the globe.