Developing an Exit Strategy for Construction Companies
As the owner of a construction company, you know there will come a time when you say goodbye to building homes and commercial structures.
Construction is one of the most labor-intensive types of work there is. While you can hire other people to perform the labor for you, at some point, you’ll want to enjoy your retirement free from the responsibilities of managing a business.
Planning an exit strategy is essential for all business owners, including those working in construction. Some owners are lucky enough to have family members to pass the organization down to, while others rely on the sale of the business to support them in retirement.
Consider these tips as you plan for your eventual exit from your construction company.
Determine Your Timeline for Selling Your Business
Ideally, you’ll want to sell your construction business when it’s maximizing its profits. You don’t want to wait too long and find your business worth less due to declining revenues or too much debt.
Seek the help of a qualified accountant and valuation specialist who can help you boost revenues, eliminate unnecessary expenses, and grow your share in the market. If your receivables are lagging or you have a lot of outstanding payables, they can reduce the value of your construction business.
The accountant and valuation specialist can help you identify ways to improve your company’s profits, increasing its future worth. No business owner wants to sell their company at a loss; having the appropriate protocols in place can ensure you’re operating the business at its maximum potential.
Try to Diversify Your Revenue Streams
Identify ways you can build your revenue apart from your major customers. For instance, you could find ways to use the equipment you have for other income streams, like lawn services or outdoor landscaping.
If you rely on just a handful of customers for your income, there’s a risk of loss of revenue in future years. You can’t predict the market or how your customers will react when you sell your company. Having few customers will negatively impact the valuation of your organization, so it’s best to ensure that your company has a strong footprint within your market sector.
Keep Up on the Maintenance of Your Equipment
Your equipment makes up a large portion of your assets. Any buyer of your company will want to ensure that your equipment is in good shape and doesn’t require many repairs.
Construction equipment can cost hundreds of thousands of dollars, and buyers know that. If they see that you maintain your facilities and equipment well, they’ll be more likely to offer the price you’re seeking for your construction business (and failing to maintain these assets can be just one mistake business owners make when they’re getting ready to sell a business).
Make Sure Your Financials Are Spotless
No buyer will risk purchasing a company that doesn’t have solid financials. If you haven’t filed your taxes in several years or don’t have a track record of regular audits, you’ve got some work to do.
Seek the assistance of a CPA who can help you get your books in order before the sale. They can assist you in organizing your records and getting your financials in check.
If you have lots of debt, paying it before entering a sale is best. Debt is unattractive to buyers who must assume the risk of repaying it if they purchase your business. You should pay off any large outstanding loans, including those for equipment, to maximize the potential value of your business.
Ensure You Have a Solid Management Team in Place
Once you leave, your employees may be responsible for handling the daily affairs you once did. Spend some time mentoring a few high-performing employees for management roles. Your buyer will appreciate the extra hands and may increase the price of your organization.
If you don’t have a good management team, your buyer must find a team capable of handling your duties. Hiring new people can impact the transition and lower morale among your existing employees. It can also alarm your customers, who may not be sure they can count on quality work from your organization anymore.
Stay One Step Ahead of Your Competition
Construction is a competitive industry. There are always new construction companies cropping up, ready to seize their portion of the market. You can maintain your hold in the industry by paying attention to your competitors. Look at what they’re offering and the advantages they have.
Rather than accepting a competitor’s dominance, incorporate their services into your own company, and find ways to stand out. Make sure to maintain a strong market presence in your area through advertising, customer reviews, and quality work.
Have a Road Map for the Future
Construction companies usually start with the vision of one person who employs a few contractors to help them with their projects. As businesses grow, they take on more significant projects and expand their workforce.
Make sure you have a vision for your company’s future. Even if it takes time to develop, a robust road map can help prepare you for what’s to come. It’s also attractive to buyers, who can consider your vision when deciding whether purchasing your company is right for them.
Pay Attention to the Economy
The need for construction tends to decline during economic difficulties, such as a recession. If the economy appears headed for a recession or is already in one, it’s probably not the right time to sell your organization, even if you’re ready to retire.
If you can’t handle managing the daily affairs of the business anymore, ask a trusted manager to do it for you. While you wait for the economy to recover, you can work on the organizational factors of selling your business, like improving its value and ensuring your finances are in check.
While a recession may damper your retirement plans, the economic uncertainty won’t last forever. Once the economy begins to power back up, you can resume your efforts to sell your business.
Preparing to Sell a Construction Business Is a Process
Selling any business requires time and effort, and it’s no different in the construction industry. Make sure you research and invest in the right resources to help you with the process. With the appropriate tools in place, you’ll be able to obtain a fair price for the construction business you’ve worked hard to build.
Need Help Selling Your Construction Business Without Anyone Knowing?
Cowen Partners’ approach is notable because we are one of the nation’s leading executive search firms and are in touch with potential buyers daily. Our Partners come from a diverse set of backgrounds and skills, ranging from business owners and entrepreneurs to CPAs and financial analysts. This diversity of talent enables the team to guide our clients with firsthand knowledge and experience through all phases of the business processes of building, buying, and selling.
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