The goal of many business owners is to grow the business and when the time is right to sell it for a profit. However, selling your construction company alone can be a nightmare. Doreen Morgan from Sunbelt Atlanta offered the information below during a recent radio interview to help you sell your construction company.
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Who is Sunbelt Atlanta?
Sunbelt Atlanta business brokers have been in business for over 25 years and have 100 combined years of experience. They cover all types of business sectors and verticals like construction, retail, technology, etc. The firm handles 18-24 transactions per year and is headquartered in Atlanta, Georgia. Sunbelt is the largest business broker in the Southeastern United States. They specialize in medium-large companies and help clients from all over the country sell their businesses.
How Did COVID Impact the Construction Industry?
Most construction firms fared pretty well during COVID; others leveled out. Smaller companies where workers had to enter a person's home were more seriously affected by the pandemic.
Utility contractors, pavers, and infrastructure companies actually did really well as long as the crews stayed healthy. They were considered essential and allowed to continue business operations as usual, and because of less traffic on the roads, they got more done during the pandemic.
Pool construction companies also did very well during Covid, with people staying home rather than taking vacations or visiting local community pools.
Additionally, during the pandemic, kitchen and bath remodeling businesses experienced a serious uptick.
What are Some Reasons People Sell Their Business?
According to Doreen, one of the most common reasons someone decides to sell their business is that they are ready to retire and don't have anyone in the family to take over.
Another big reason someone decides to sell is to take their business to the next level. Specifically, infrastructure companies that have more work than they can handle right now are considering selling. Owners don't want to dip into their retirement nest egg to add more crews and equipment. Selling gives them equity to start a new larger business and expand without eating away at any of their existing savings. Rolling the equity into a new company preserves their reserves so they can retire comfortably when they are ready.
Some companies decide to sell when they are hurting for income, but that is rarely the main reason. Usually, it is based on a growth strategy or major life event.
Why Should You Hire a Business Broker?
Selling a business yourself is really hard, and you surrender confidentiality in the process. A business broker handles many facets of the entire operation, including providing an accurate value of the company’s worth. Owners may think their "baby" is worth much more than it actually is.
It's essential to keep things as confidential as possible until you get to the closing table. Finding a buyer is only 10% of what goes into the selling process. All the heavy lifting starts after you find the buyer.
A full-service business brokerage firm takes care of everything for you, including getting financing in place even before identifying a buyer. They also manage the due diligence process confidentially, handle LOI to the closing table, and coordinate due diligence (meaning who has access to what information and when). In addition, they will manage due diligence efforts in stages so that proprietary information is not disclosed until the appropriate times.
Sunbelt Atlanta also arranges financing. Sometimes sales are owner-financed, and others are backed by the FDA (smaller businesses usually). Ninety-five percent of the time, they transfer ownership to a new owner without the seller holding a note. Sometimes, however, FDA guidelines require that the seller hold a small note (10%) for a short amount of time.
Additionally, a business broker coordinates with attorneys, appraisers, and CPAs, managing the entire process, so it's seamless. Their work allows you to focus on running your business and not taking your foot off the gas.
Do Owners Stay on After the Sale?
In most cases, yes, a business owner will stay on for a specific amount of time to help transition the business, depending on the size of the company.
With small companies that don't have a complex bid process or long-term contracts such as installation, building supply, painting contractors, or hardscape businesses, an owner would expect to stay on for 6-8 weeks after the sale.
Conversely, large contractors with long-term contracts, a complex bid process, or heavy bids like those involved in municipal infrastructure work where projects last from 2-5 years can expect to stay on for 6-18 months after the sale to help with the transition.
How to Determine the Value of Your Construction Business
Determining the value of a construction business works the same as with other types of companies; it is based on a multiple of earnings.
It varies by the type of company and size. For example, a painting or hardscape company, or even a small HVAC business could expect a valuation of 2 & 1/2 times its annual earnings.
Whereas a heavy construction company that does railroad work would be valued at 3-6 & 1/2 or even seven times the annual earnings.
Another factor that matters greatly is geography. Southern companies are valued higher because they can work year-round. Larger companies also value higher than smaller businesses. A company with a healthy backlog of long-term projects and viable pipelines will value very well. Record keeping is crucial during this phase to prove earnings and future work.
How Long Will It Take to Sell Your Construction Business?
Sunbelt Atlanta sells a business within 5-7 months, barring any unforeseen complications. Of course, there are always outliers, but that is the average time it takes to sell a construction business.
Sunbelt never asks for a retainer or upfront fees; they sit on the same side of the table as you and don't get paid unless they sell your business.
Are Potential Buyers Allowed to Visit Projects Before the Sale?
It's common for a potential buyer to say, "I can look at a crew and know how the business is run." However, it is important not to start letting buyers look at the projects and come on site until they have been thoroughly vetted and their financing is set up with initial agreements in place.
Buyers will want to see everything, so keep good records. If you plan on selling within the next few years, now is the time to plan and start keeping detailed records. For example, a potential buyer will ask you:
- How many projects did you send out for bid within the past 3-5 years?
- How many did you actually win?
- Out of those projects, how close was your quote to the actual cost?
- How many contracted projects do you have now?
- How many were under budget, and how many were over budget?
They will want to look closely at the pipeline to determine the percentage of projects you won, the cost, and the backlog. The more you can track, the better. For your project work, treat every project as its own P&L (profit and loss).
Is There a Good Time to Sell Your Construction Business?
When thinking about selling your business, always sell when things are going really well, don't wait.
Right now, a ton of money is going into infrastructure, and therefore, future projects are guaranteed, making now a perfect time to sell.
The housing market, which slowed down during the pandemic, is also starting to boom. People are relocating all over the country because they can work from anywhere as remote workers. As a result, new home construction will remain strong for at least the next few years.
If you are considering selling your construction business, contact Sunbelt Atlanta to see how we can help.