I’m frequently asked about issues pertaining to either buying or selling a construction related business. I’ve heard any number of people say they are going to build their business up, then sell it. Let’s talk a bit of reality here.
First, why would anyone want to sell a profitable business? I can see selling a profitable business if the owner has a terminal disease, or wants to retire and let his/her children take over the business. But that is about the limit of the honest reasons I can think of. As Brian Tracy says in his writings on the subject, if you look long enough at a business for sale, you will normally find the reason it’s for sale. That reason is almost never good for the buyer. There are any numbers of books at your local library that will take you step by step through the buying or selling process. Every one that I have read says the same thing that Tracy does. Look for the reason the business is for sale.
Buying or selling a business is a whole lot different than buying or selling a car or a home or a can of soup. For a business to be bought or sold and both the buyer and the seller to end up in a win-win situation, there is a lot of work and research to be done by both sides. The first question is, “What is this business worth?”
The answer is that a business is almost never worth what the seller, or the buyer, thinks it is worth. And, in this old farm boy’s humble opinion, most construction companies are worth little more than the physical assets owned by the business. There is little or no “blue sky” in a construction company. If you think there is, shut the phone off for six weeks, turn it back on and see how many phone calls come in.
One of the major mistakes made by many business owners is bleeding the company dry. They justify all kinds of fancy vehicles, trips, toys and stuff for themselves from the company, then when it is time to sell, they tell you the millions the business is worth. How they establish that price is beyond me when they show three, four or five years of little or no profit.
For families trying to pass the torch from father/mother to son/daughter, “here”, as John Wayne used to say, “is some real good advice.” Put a dollar value on the business before you sign the contract. I am talking a fixed figure amount. No percent of profits, no umpteen dollars a month for the rest of the parent’s life. Put a fixed figure value on the business to be paid in full in X number of years and save yourself a ton of arguing, fighting, and family disputes.
There are a number of ways to evaluate a construction related business. Most of them take several people to assemble the information to make that evaluation judgment. It is not easy work and it can get expensive. If you are thinking of buying or selling, think long and hard. Let us know if we can help you on this, or any other issue.
The knowledge and experience Michael Stone gained in his 60+ years in construction has helped thousands of contractors improve their businesses and their lives. He is the author of the books Markup & Profit Revisited, Profitable Sales, and Estimating Construction Profitably, and is available for one-on-one consultations as needed.