Preparing to Sell Your Business: What Smart Construction Owners Do First
Smart planning plays a vital role if you want to sell your business in the construction industry where value calculations get complex. The Exit Planning Institute reveals a stark reality – business owners keep much of their wealth in their businesses. Yet 8 out of 10 businesses never find buyers. These numbers explain why good preparation makes all the difference.
You’ll find construction companies selling at an EBITDA multiple of 9-11x. Their profit margins typically range from 2% to 10%. Specialty contractors can push these margins higher to 15% to 20%. Getting these numbers right is just the start when you want to sell a construction company. Your company’s online image can impact your sale by a lot—76% of consumers keep reading online reviews while looking up local businesses. Google remains the top choice with 87% of people using it to check out companies.
Getting a full picture of your company’s worth helps set the right price expectations. It also shows ways to boost your business value before the sale. Buyers love businesses that show steady, positive cash flow because it proves stability. This piece walks you through everything in preparing your construction business for sale – from what drives value to making key areas attractive for premium offers.
Understand What Drives Construction Business Value
Your construction business’s core value drivers need a full picture before you put it up for sale. Each construction company has its unique strengths, but buyers tend to look at several basic factors when they assess businesses.
1. Financial performance and profit margins
Your construction business’s financial health directly affects its market value. Most valuations show a company’s fair market value as a multiple of EBITDA (earnings before interest, taxes, depreciation, and amortization). Construction companies usually sell for EBITDA multiples between 3-6 times, and these numbers change by a lot based on industry segment. Residential construction companies often get multiples just under 3x, while utility construction companies might get about 5x EBITDA.
Companies that show steady profits over many years prove their stability and good management. Businesses with profit margins higher than industry averages often get premium valuations, while those with up-and-down earnings sell for less. Buyers will really inspect your financial statements and key financial ratios during due diligence.
2. Equipment, assets, and liabilities
Construction companies get much of their value from tangible assets, unlike businesses that focus on intellectual property. Your equipment, vehicles, and real estate add by a lot to your company’s overall worth. Buyers look carefully at equipment age, condition, maintenance records, and how long it will last.
On top of that, well-maintained, modern equipment improves company value by cutting operating costs and making work more productive. Many sellers choose to keep owning their assets and lease them to the business after the sale. Regular maintenance and current appraisals can make these assets more valuable to buyers.
3. Client base and contract stability
A steady or growing client base affects valuation heavily. Working across different industries, business sizes, and locations reduces risks from depending too much on specific clients. Your project backlog—the value of signed contracts waiting to be completed—gives a vital look at future revenue.
Good relationships with general contractors, property developers, and government agencies create advantages that lead to higher valuations. Companies known for quality work and on-time delivery get better contract terms and steadier work. Long-term contracts with respected clients can make your business more attractive to potential buyers.
4. Market trends and regional demand
Market conditions outside your control play a big role in determining construction business value. The construction industry goes through ups and downs that affect company valuation. Construction work changes with seasons in many areas, so historical data on revenue and profits helps estimate future numbers.
Growing demand in specific construction sectors affects a company’s value and future income directly. Local economic growth, regulations, and available workers shape your competitive advantages. Working in different locations reduces risks from local economic problems, rule changes, or overcrowded markets—this creates opportunities for growth.
Get Your Financials in Order
Financial transparency lies at the heart of selling a business successfully. Potential buyers will inspect your construction company’s financial records to determine its true value and future prospects.
1. Clean up income statements and balance sheets
Your financial statements must comply with Generally Accepted Accounting Principles (GAAP). Well-laid-out and clean records build buyer confidence and lead to smoother due diligence. Buyers usually ask for three to five years of profit and loss statements, balance sheets, bank statements, and tax returns. A financial statement review or audit can boost your credibility as a well-managed business.
2. Identify and adjust non-recurring expenses
Your business’s ongoing earning potential matters most to buyers. You should document one-time expenses that won’t continue under new ownership. These expenses include COVID relief program funds like PPP loan forgiveness or Employee Retention Credits, legal settlements, and extraordinary maintenance costs. Your profit calculations become clearer once you remove these items.
3. Normalize owner compensation and perks
Construction business owners often reduce reported profits by maximizing their compensation or running personal expenses through the business. Most businesses sell for a multiple of earnings, so each dollar of unnecessary expense could cost you four dollars in selling price. Market rates should determine owner salaries based on industry salary surveys. Personal perks like vacation properties, non-contributing family members on payroll, and discretionary expenses must be removed.
4. Prepare a 3-5 year financial forecast
Realistic financial projections showcase your company’s growth potential. A detailed construction company financial plan includes income statements, cash flow statements, and balance sheets. Your forecast must factor in project numbers, average contract values, material costs, and seasonal patterns. The projections need quarterly updates or revisions whenever major costs change.
Optimize Key Areas Before Listing
Your construction company’s selling price can go up when you optimize more than just financial statements. Here are five key areas that will help you attract quality buyers and get premium valuations.
1. Build a strong management team
Buyers find construction businesses more attractive when they have capable management teams. They see high risk in situations where owners handle daily operations and client relationships. Start strengthening your management team several years before you sell to ensure a smooth transition. You could also try selling small ownership portions over time to motivate key employees. Most buyers in the industry prefer to buy businesses that already have the expertise and leadership needed for smooth operations during transition.
2. Maintain and document equipment condition
Equipment inventory adds significant value to your business, especially in construction. Regular maintenance, timely repairs, and necessary replacements will help you get the best selling price. The smart approach spreads maintenance costs throughout the equipment’s life instead of rushing repairs before selling. Well-documented maintenance records work as an effective marketing tool to showcase your company’s strengths.
3. Strengthen online presence and reviews
76% of consumers “regularly” check online reviews when looking for local businesses, and 87% use Google to review companies. Your business needs a mobile-friendly website with current information—note that 62% of customers ignore businesses without web presence. Make sure to claim your Google Business Profile, social media pages, and listings on industry-specific review sites. Reviews matter most to consumers when they look for service businesses and tradespeople, making these industries among the top three.
4. Broaden project types and revenue streams
Investors see red flags when one large client represents most of your revenue. More than 40% of billings from a single customer can create problems. You can reduce risk by learning about complementary services like design-build packages, maintenance plans, or repair services. Recurring revenue models like service or maintenance contracts show steady, predictable cash flow that buyers and investors find attractive.
5. Improve operational efficiency
Make your operations lean by removing non-operating assets and unnecessary operations. Clear, repeatable standard operating procedures will help potential buyers understand your processes. This standardization keeps business running smoothly no matter who’s in charge. Look at past job histories to find your highest-margin projects and focus your resources there. We focused on ways to optimize operations, reduce costs, and manage inventory without disrupting your business.
Plan the Sale and Work with Experts
Your exit timing and the right team selection make everything in preparing to sell your business work. The right specialized professionals can guide you toward a soaring win.
1. Decide the right time to sell
Your construction company sells best when business thrives. Selling during peak performance might seem odd, but waiting for that “just one more good year” might cost you valuable opportunities. Business owners often wish they hadn’t delayed their exit after facing unexpected challenges – health problems, major client losses, or market downturns. A construction business with stable profits and upward growth trends naturally draws more buyer attention.
2. Prepare for due diligence
Due diligence takes the most time when selling a construction business. Buyers need 60-90 days to dissect your company’s operations. You can make this smoother by assigning specific team members as due diligence contacts. Your support team should include experienced lawyers, accountants, and HR specialists. A nondisclosure agreement must protect your sensitive company data before any information sharing begins.
3. Choose between brokers or M&A advisors
Business brokers work well for construction businesses worth under $2 million. M&A advisors handle the bigger, complex deals that exceed $2 million. Regional transactions with clear valuations suit business brokers, while M&A advisors offer a complete service package including strategic targeting and intellectual asset valuation. M&A advisors charge more but stay involved even after closing the deal.
4. Understand buyer types and expectations
Each buyer type sees your construction business differently. Public sector buyers need compliance and transparency. Private buyers care more about competitive pricing and flexibility. Strategic buyers (your competitors) look for market growth chances and operational benefits. Financial buyers, such as private equity firms, want strong cash flow and growth potential. These priorities help you present your company in the best light to each buyer type.
Conclusion
Selling your construction business will be one of the biggest financial moves you’ll ever make. Most owners have their wealth tied to their companies, and with 80% of businesses failing to sell, proper preparation becomes vital to exit successfully.
Your business value depends on several key factors. Financial performance matters a lot, and construction companies usually command EBITDA multiples between 3-6 times. Your equipment’s condition, client base stability, and market position add high value to your final valuation.
Clean financial records stand out as the most vital step before listing your business. You need to organize income statements, adjust owner compensation, and create realistic forecasts that show your business’s potential. Buyers look for clear financial records that prove steady profits and room to grow.
Smart construction owners focus on improving core operational areas. A strong management team will keep the business running smoothly after you leave. Well-maintained equipment, a solid online presence, broader revenue streams, and improved efficiency work together to boost your selling price.
The right timing can make or break your exit strategy. Business owners often hold on too long and wait for “just one more good year.” This delay makes them miss the best time to sell. The right professionals can guide you through this complex process – business brokers help smaller companies while M&A advisors assist larger ones.
You need careful planning to sell your construction business well. Start preparing years before your planned exit date. This gives you time to fix weak spots and showcase your strengths. The process might look tough, but taking these steps now will without doubt help you get top dollar when you decide to sell.
