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By Duane Craig
January 28, 2019
Many owners of small and medium-sized construction businesses see selling their company as their exit strategy. If you plan to sell your business in 2019, you should stand a good chance of finding a buyer. According to Deloitte, mergers, and acquisition activity are expected to be strong this year.
When companies go out to buy other businesses this year, they'll be trying to get new technology, expand, or diversify their product offerings. They’ll also be looking into moving into new geographies.
Here are 4 effective strategies for preparing your business to sell.
1. Know the Value
Your first challenge is to accept that people add the most value to the majority of construction businesses. In fact, it's the people who give the business its long-term value. Sure, you could sell your assets and customer lists, but that's always going to be worth less than selling a fully functioning business with all the resources, including the people to do the work. So, pay close attention to your employees’ career tracks.
Spend time with each of them assessing their interests and skills and mapping out their career paths. Besides working the paths, work with them in establishing timelines. This will give them some idea of how quickly they can move up. What’ more, a big part of this planning includes succession planning. What will happen to the business if the key players are removed? Ideally, you'll want to show prospective buyers that your people have the skills and experience to succeed even with a change in management.
2. Find Your Strengths
You can sell your business in a number of ways. In an outright sale, the buyer simply purchases at an agreed price. In some cases, the buyer might want to pay on time, using the business's performance to fund the purchase after putting down a substantial down payment.
Sometimes, the buyer might be looking to purchase outright and absorb your business into their existing company. Regardless of the planned outcome, knowing your business strengths and playing to them helps you zero in on potential buyers and, ultimately, structure a deal in your best interests.
For instance, you have unique connections with owners and everything in place to handle their projects, then one of your strengths is that you can offer a turnkey transition. The buyer can take over the business without missing a beat, even after you step away. That's a stronger position then the buyer having to bring in their own management team.
3. Find Your Buyers
The people and companies that would likely buy your business are the key to understanding the requirements you need to fulfill. For instance, if your business is operating within a unique niche in your area, it could make a welcome addition to another nearby contractor's business by helping them to expand into new types of projects.
Or, a construction business employing specialists in areas like green building certifications or building information modeling offers a buyer the chance to add those abilities to its repertoire. That means you'll be looking for buyers who are on the cusp of new technologies and looking to expand by adding to their skills.
Of course, there will be overlap. Some buyers might be focused on expanding into new areas while expanding into different project types. So, it's also important not to limit your view of potential buyers. Instead, work out the most likely buyer types and tailor your sale package and promotional efforts to match what they need. However, also consider other types of buyers your business would appeal to and work out strategies to accommodate them as well.
4. Develop Your Sale Package
Next, it's time to focus on the money. A buyer will want to examine extensive financial records. They'll want to see profit and loss statements going back at least five years. They'll be interested in tax returns, financial statements that are audited, and accounts receivable and payable. Hopefully, you'll be working with legal and accounting counsel as you prepare your package so that you avoid common pitfalls.
For construction businesses, it's a safe bet that buyers will want to scrutinize all aspects of your operations. How well do your estimates match up with project outcomes, and what project delivery methods do you excel at? They will also be interested in your insurance coverage, bonding capacity, and how well you've stayed in compliance with regulations and standard business practices. Potential buyers will have a keen interest in how much, and what type of, work is in the pipeline.
Your physical assets like buildings and equipment also become a big part of the package. Improving them can help overcome concerns regarding the costs of operating the business. You should also pay attention to your business's legal status. When buyers want to buy the business, and not just the assets, they will want to see your business documents and confirm the standing of the business.
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