I've been running a small commercial construction company for 22 years. We do mostly tenant improvements and some light industrial. I'm 61 and thinking about selling in the next 18 months. I have a solid team, decent backlog, but I'm the face of the business. Where do I even start? Broker? Direct approach to competitors? I've never sold anything bigger than a used truck.
Business Exit
how to sell a construction business
Start by getting your financials in order. Three years of clean, reviewed statements. Buyers will want to see add-backs.
I sold my electrical contracting business two years ago. The biggest thing was reducing owner dependence. I had to step back from day-to-day for about a year before listing. That made the business much more sellable.
How big is your backlog? And do you have a project manager who could run things without you?
i have a PM who's been with me 9 years. He could probably run operations, but he doesn't have the client relationships. Backlog is about 8 months right now.
Competitors might be your best buyers. They can absorb your crew and backlog and cut overhead. But they'll also want to pay for assets, not goodwill, unless you have something unique.
Brokers in this space take a lot. I'd talk to a couple but also consider a business appraiser first. Know what your number is before anyone else tells you.
Also, construction businesses are tricky because of bonding capacity and license transfer. Make sure you understand what happens to your license when you sell. In some states it doesn't transfer.
I've been through this as a buyer. The owner staying on for a transition period was huge. We needed him for about 6 months to keep clients calm. If you're not willing to do that, it hurts the vAlue.
Second the transition period. I did 12 months consuling. It was worth it for the earn-out.
You mentioned the PM doesn't have client relationships. That's going to be your biggest hurdle. Buyers pay for recurring revenue and transferable relationships. If clients only work with you, they'll discount the price heavily.
that's what I'm afraid of. I've been trying to bring the PM into more client meetings over the last year, but some of the old-timers still only want to talk to me.
Could you sell a minority stake to your PM? That would give him more skin in the game and make the business more attractive to a future buyer. It also gives you a partner to help transition.
Be careful with that. If the PM doesn't have capital, it gets messy. But if he's a real operator, it could work. Just get a good attorney.
Also, get your contracts reviewed. Any liens, disputes, or warranty issues will come up in due diligence. Clean those up now before you list.
And separate personal expenses from the business. I've seen so many construction owners run personal trucks and fuel through the company. It makes the financials look worse and kills valuation.
Yes, I've been guilty of that. I'll get my accountant to help clean it up.