Increasing the value of your construction business prior to a sale
CONSTRUCTION QUARTERLY UPDATES |
With larger companies and private equity groups looking to use cash reserves to make purchases, the time may be right to explore selling your construction business. Many baby boomers are looking to exit their companies to pursue other goals in life, but have never sold a business. To make the best decision for your future, you must dedicate time to building value in your business prior to a sale.
The last decade has been a roller coaster ride for many construction businesses, and some owners are looking for an opportunity to liquidate the business. Unfortunately, in many cases, owners do not plan early enough, or do not focus on the right value drivers, diminishing sale proceeds. A two- to three-year plan is often necessary to position the company for an optimal sale.
As the economy improves, some owners who have a sale in mind may delay the transaction because the business is doing well. However, a high point in earnings is the best time to consider a sale, potentially to a competitor or someone looking to enter the construction industry. You must have foresight to evaluate the marketplace to target the right time to sell to maximize your proceeds.
In order to properly value your business in preparation for a sale, you must understand how a potential buyer views your business. Understandably, many owners are partial to their business, and have an inflated view of its worth. An objective advisor can help determine the value of your company on the open market, and pinpoint areas to increase your potential sale price.
Once you understand the value of your business, you can identify areas to build incremental value. These include:
- Balanced and growing customer mix
- Highly skilled, efficient and loyal workforce
- Product and service innovation
- Modern systems, processes and tools
- Strength of management information systems (financial and operational)
Improving these and other key areas prior to a sale can ultimately increase the demand for your business. In the two- to three-year window to prepare your company for a sale, you should also correct minor cosmetic issues to build additional value. Small, avoidable issues often delay transactions and result in lower offers during the negotiation period.
Read our white paper “Building business value: Maximizing the results of selling your company” for more value drivers and a deeper analysis of how to prepare your business for the sale process.