Every construction contractor (or construction general contractor, construction sub-contractor, construction specialty contractor, HVAC, plumbing, mechanical, mill-work, miscellaneous metal, structural steel, concrete, etc) has a magical number in their head. “Your Number”
This number is the future business sales value of their business when you want to turn the business over to your kids or sell to managers or third parties. For most people this number is a fantasy but a few owners will do the work and make the changes to obtain their Number. This report is for you few who are willing to take the ACTIONS necessary to implement a construction contractor exit plan or construction contractor succession strategy.
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THE PROBLEM / OPPORTUNITY
- Less than 25 % of all businesses are sold. The rest are closed and liquidated
- Of businesses with $2.5 million to $10 million in revenue 35% will sell
- Of businesses with $10 million to $50 million in revenue 50% will sell
While I do not have data I would contend that construction contractors (and sub-contractors) have even worse results with their business exits and successions. This is because construction contractors tend to be personality driven, have thin management, and often have bonding requirements all of which reduce the pool of qualified buyers.
But, for those few who do the right thing and get their sale right the rewards are tremendous. You can get, “Your Number”. In some cases it is the difference between $5 million and $15 million dollars of sales value. Or shutting down and trying to collect receivables or selling for $3 million. Let me demonstrate below.
A true example:
Magnificent Plumbing has $20 million of revenues. They have a 75% Cost of Goods Sold or $15 million. They have a $3 million overhead and administrative cost. They have $2 million profit. For our purpose here we will use a multiplier of 5 so the company is worth $10 million. A nice going away gift for the owner. But Magnificent Plumbing’s owner is tired and not really paying attention. Over two years sales fall a little over 20% to $16 million. Happens all the time.
Now, what happens to the bottom line? (What you sell!) The cost of goods sold stays 75% or $12 Million but overhead and administrative barely go down at all and are still at $3 Million (sound familiar?) Total costs are now $15 million, profits are $1 million and the value (5x) is now $5 million Generally this is when owners decide to sell. When the company is worth $5 million.
But, this is the exciting opportunity: What if the owner focused hard with the intent of creating as marketable a company as possible? What if they increase sales by 10% instead of having sales drop by 10% each year? Now at the end of two years the company revenues are $24 million, COGS is $18 million, and having kept overhead tight it is still at $3 million making profit $3 million. Now the company is worth $15 million. Now go to market.
The difference between where you are today and where you want to be is your Gap. The question is how do you close your gap and Get Your Number?
Simple – Construction Contractor Strategic Exit and Succession Planning followed by ACTION.
Would you rather plan your sale?
The choice is yours: Work really hard for a few years at the right time and receive $15 million for your contracting business or wait too long, sell at the wrong time and get $5 million. And remember, $5 million is a great sale compared to most owners who wait even longer and get nothing. Nadda. Zippo.
So do it right, get Your Number and enjoy Florida or wherever really works for you. Do it wrong, struggle to pay your bills as you close and sit on your very old couch. Which would you choose? Of Course – Your Number.
Clients choose Harvest Business Advisors for our accurate business valuations and our consistent ability to deliver a high price as part of a smooth exit transaction.
Harvest Business Advisors provides business brokerage, business valuation, and business succession planning services. We have extensive experience in the information technology and professional services, manufacturing, distribution, and contracting fields. We maintain offices in Maryland, New Jersey and Virginia. Connect with us at firstname.lastname@example.org or 877-838-4966 to discuss selling your business, ordering a business valuation or buying a business.