How to Sell a Construction Business

Even with an awesome job management software like Tradify by your side, running a successful construction business takes time, money and a whole lot of commitment. When the time comes for a new adventure, figuring out how to sell a construction business can be a life-altering process. Check out our tips below to make sure you get a fair deal on your construction business. 

For the best tool to run your trade business, try Tradify free for 14-days. 

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1. The best time to sell
2. Sort out your paperwork
3. Get a business appraisal
4. Calculate your SDE
5. Create an exit strategy
   
6. Find a buyer!

1. The best time to sell. 

Just because you’re ready to sail off into the sunset, doesn’t mean that it’s the best time to sell your construction business. Prospective buyers will be looking for a business with at least two years of recorded growth and profit behind it. That means, if you’re looking to sell your business in the near future, it’s time to buckle down and make sure it’s as profitable as possible. It may also take time to prepare your business to run without you at the helm - this means training your staff and preparing for alternative management. The new buyer may not have the same level of experience and training as you, so being able to offer a profitable business pre-set and ready to go without the need for additional management is a seriously tempting officer. 

2. Sort out your paperwork

It would be great to simply point at your business's bank account and say, ‘Twada! Look, money!’ However, in order to legitimately prove your business profitability, you will need to provide a minimum of two years of tax returns, invoices and financial statements. Luckily, using a job management software such as Tradify takes all the stress and time out of administration; including timesheets and invoices. 

Need help creating accurate business records? Try: 

• Cash flow forecasting and profitability for trade businesses
• Small business break-even analysis for tradespeople
• Small business sales forecasting for tradespeople

Tradify also integrates with your favourite accounting software, reducing the need for manual double entry, generating financial statements and tracking your ongoing costs. 

• Xero
• Sage
• MYOB
• QuickBooks

3. Get a business appraisal 

Getting an accurate third-party business appraisal will also be the first step in understanding how much your construction business is actually worth. There may be aspects of your business that are worth more than you think!

A business appraisal will consider several factors, including:

• Average number of jobs: This shows a consistent demand for your services.
• Profit margin per job: Make sure your charge-out rate and profit margin are aligned with the industry standards and are making the business money!
• Customer base: Having regular, repeat customers is a sign of a stable business. 

In addition to these, your appraisal will assess both tangible assets like vehicles, tools, equipment, and real estate, and intangible assets such as:

• Experienced staff: Their expertise reduces any transition risks for the buyer.
• Licenses: Ensures legal compliance, plus reduces admin for the buyer. 
• Branding and marketing: A strong marketing presence can significantly enhance value, particularly if there is a solid plan in place.
• Specialisation: Unique services can set your business apart in the marketplace.
• Founder involvement: Minimal owner involvement can make the business more appealing to buyers, as it suggests the business can operate successfully under new management.

4. Calculate your SDE 

Your construction business's Seller's Discretionary Earnings (SDE) provides a more accurate representation of a business's earning power by adjusting for non-essential expenses. Begin with the net income from your tax return, which reflects profit after operating expenses. Then, add back non-essential items such as interest on debts, depreciation and amortisation of assets, and any unusual operational costs.

 Further adjustments should include removing:

• How much you’re paying yourself
• Discretionary expenses, including staff parties or meals. 
• Personal vehicle expenses. 

This calculation will offer potential buyers a clearer view of your construction business’s financial health and profitability once you exit.

5. Create an exit strategy

Your last day may occur a while after you sign the dotted line. When selling a construction business, a new owner may wish to negotiate additional time with you, to ensure a smooth crossover between ownership.

As part of your handover, the new owner may wish for you to provide a plan for:

• Future purchases: Will the new owner need to hire additional staff, purchase new equipment, or train the existing workforce?
• Management: Can the remaining management staff manage the business during and after your departure? 
• Staff: Are your staff prepared? 
• Costing: Are your current charge-out rate and profit margin properly set up?
• Plan: Do you have a clear business plan for the new owner to follow?

6. Find a buyer!

If there’s one thing a tradesperson is known for, it's a ‘do-it-yourself’ attitude. However, when it comes to legal matters and the future of your finances, it pays to pay for professional assistance. Working with a reputable business broker means you can take advantage of their professional networks, plus ensure you're following all the legal requirements. 

Using a business broker to sell your construction business allows you to tap into their expertise and network to effectively reach and engage the right buyer. Brokers play a crucial role in marketing your business, assessing the financial and operational fit of potential buyers, and facilitating negotiations to secure the best terms. 

Typically, a buyer will fall into one of the following categories: 

• Individual buyers, who are interested in a stable income source for construction businesses earning less than $1 million. These are likely other people looking to run their own construction business or merge with their existing construction business. 
• Strategic buyers often come from similar industries looking to expand their market reach, they usually look at companies with earnings above $1 million. 
• Private equity buyers will seek scalable opportunities, often from businesses with a proven track record and ability to run profitably with minimal oversight. 

Additionally, brokers manage the legal aspects of the transaction, ensuring compliance and smooth handling of all contractual obligations, and assist with the transition to new ownership. 

Get your admin sorted and start experiencing the benefits of an organised construction business. Sign up for a 14-day free trial with Tradify. No credit card required. No commitment. Or pop over to one of our live demo webinars to see Tradify in action.