Selling A Construction Business For Maximum Value In Vancouver
Want a competitive advantage when selling your construction business? You’re in the right place—here’s how you can maximize the sale price of your construction company….. From a business broker who sold two construction companies in 2022/23 (one doing approximately $15M in annual revenue and one doing approximately $3M annual revenue) in Vancouver:
Pick the Right Time To Sell
Construction is a constant here in Vancouver, so when we’re talking about the right time to sell, we’re not talking about the right month or season.
When profits are up, new contracts are coming in, and your fleet is in tip-top shape—that’s the time to sell your business. This is, of course, a bit counterintuitive—if your business is thriving, you might be tempted to stay at the helm.
The problem is that when profits are down, contracts have dried up, and your fleet is ageing, very few people will be interested in buying your business. Ideally, you want to sell when your business is at its strongest—time your exit accordingly.
Identify the Strengths and Weaknesses of Your Construction Company
Every construction business has strengths: Unique clients, privileged relationships with suppliers, well-kept fleets/tools/equipment, experienced employees, and other selling points.
In the same vein, every construction company has weaknesses—anything from higher costs per job than average to a lack of experience with certain materials or techniques.
To attract potential buyers, you need to differentiate your construction business from the competition—your strengths will help you do that. Your weaknesses, on the other hand, can hurt the value of your business. These weaknesses shouldn’t be papered over—the most glaring ones should be addressed before you sell to maximize value.
Separate Yourself From the Competition
As a business owner, you know what separates your construction business from the competition—but your potential buyers don’t.
You might be an expert at commercial utility installations. You may offer design-build services. Perhaps you offer demolition and construction services—maybe you specialize in hazardous material remediation. Think about the things you do that other construction businesses can’t or won’t—and tell your business broker about those things.
Consider Removing Yourself From Day-to-Day Operations
The construction industry is filled with businesses that start from the ground up—the business owner has a lot of experience in the field and ends up personally overseeing most jobs.
There’s nothing wrong with that when you’re the one operating your construction company—but when someone else is looking to buy the company, they may find you hard to replace. You should teach your most trusted employees to take on all your roles, dividing your tasks into a new executive team. When you give key employees your old responsibilities, it will make the transition to the new owner that much smoother.
Factors Impacting the Sale Price
As we mentioned at the top, choosing the right time to sell can dramatically impact the process of selling your construction business. Below, we’ve broken those factors down into greater detail:
Several methods can be used to determine the value of a construction company—and for any of them, the prospective buyer will be looking at your financial records. Profit and loss statements, cash flow, and more will be scrutinized—so you need to have your finances in order.
One of our preferred methods of business valuation for construction companies is SDE—seller’s discretionary earnings. We may also use EBITDA. Both of these methods of business valuation use your financial statements to determine earnings and then attach a multiplier to those earnings to calculate the final value.
The goal of valuation is to find a sweet spot to list your construction company for—high enough that you’ll get what your construction business is worth but low enough that we’ll be able to attract plenty of buyers.
Construction companies can have millions of dollars in equipment alone. These are depreciating assets, which can have very positive tax implications for buyers—plus, it’s going to be hard for them to operate a construction company without any machines or tools.
A construction company with a well-kept fleet and a vast inventory of construction tools will typically sell for far more than one with a fleet in disrepair. Proper maintenance will help your business sell for more.
When selling your construction company, having excellent earnings and a great fleet isn’t enough—ideally, you’ll want proof that more profits are coming your way. A great way of doing this is to sell your company when you have active or upcoming contracts—as long as those contracts look lucrative.
On the other hand, contracts that are past due, that you’re being penalized for not completing, or that are otherwise toxic to the business may actually lower the selling price of your construction company.
Finally, having all the standard operating paperwork to secure contracts in place—making sure, for example, that you’re licensed, bonded, and insured—will make selling your construction company easier.
Intangibles matter when selling a construction company—and reputation is the biggest intangible of them all. When you’ve got a great relationship with your vendors, you’ve completed private and public contracts on time and budget, and you’ve got a whole portfolio of happy customers willing to give references, it’s going to be easy to sell your business.
As you can imagine, when the opposite is true—your vendors don’t like you, and you don’t have very many satisfied customers—selling your construction business will be an uphill battle.
Use a Business Broker
The best way to sell a construction company is to use a business broker. An experienced business broker, like Jason Brice, will:
Review your business operations to help you shore up weaknesses and highlight strengths
Help you develop an exit strategy so you can sell at the right time and start training key employees to take over your responsibilities
Find and vet qualified buyers
Walk you through the entire sale process, including the due diligence process, and coordinate your legal and accounting teams
Find the right asking price to get you the most value when you sell your business
As a business broker in Vancouver, Jason Brice has sold several construction businesses, including Klondike Contracting and Revision Renovations. Use his years of experience in the industry to your advantage when you sell your construction business—call him for a consultation today.