How to Sell a Construction Company

San Diego Business Attorneys Help to Prepare Your Construction Company for Sale

Are you searching for insight on how to sell a construction company in San Diego or Southern California?  The experienced business attorneys at the Watkins Firm can help you to prepare your company for sale while providing sound counsel and legal services throughout the transaction.

(1) Big Picture – make your business valuable to a purchaser

There are numerous ways to value a business. Generally, the valuation methods focus on profits or earnings with consideration for expenses. These valuation methods each may give some insight into how potential buyers may value a business, but the methods only tell part of the story.

A buyer will only pay for value that a seller can deliver. A valuable business has “goodwill” that can be delivered to a potential buyer in the form of future cash flow. Goodwill is a term used to describe the value of a business beyond the value of the regular assets (real property, equipment etc.) of that business. Goodwill for a construction company includes the value of ongoing contracts, reputation, skilled employees, client lists and most importantly a customer base with prospects for growth.

A business owner wishing to sell a business for top dollar must develop this goodwill in such a way that it may be transferred to a buyer. Many construction companies depend entirely upon the marketing and supervision of the owner. An owner’s intimate involvement in these important aspects of the business can create significant goodwill in the business, but at the same time this intimate involvement may make that goodwill difficult or impossible to transfer to a buyer.

The most valuable construction companies will have leadership in place that may report to an owner but does not entirely depend on the owner for marketing, estimating, scheduling, ordering and on-site supervision of employees and/or subcontractors. Goodwill is best demonstrated by several years of success of the business with individuals other than the owner in charge of the various high-level responsibilities. Several years of success will give a buyer confidence that the business has value worth paying for.

(2) Get the company books in order

Any potential buyer’s first review of a company for purchase will include careful review the books of the party wishing to sell a construction company. First and foremost, accuracy is important. Make sure income and expenses are accurately recorded and that all taxes are paid up to date.

Ensure personal expenses are removed from the books. Personal expenses such as cars for personal use, family salaries, vacations and personal purchases should be excluded. No buyer is going to pay for profit that is the result of personal expenses. “Clean” company books provides a buyer with an overall sense of professionalism for the selling company.

Review company financials with a selling broker and CPA. Each the broker and CPA will be able to help develop financials desirable to buyers. This is also good timing to consider the tax implications for various types of business sale and investment planning for use of the proceeds of any eventual sale.

(3) Attend to The details

When your ready to actually sell a construction company in San Diego or Southern California below is a check list of items you should have in order to make sure your sale goes through smoothly and for the best price and terms possible:

The following items may or may not apply depending on the individual selling company.

• Ownership – Is the business a corporation or limited liability company? If yes, who are the shareholders or members? Will all shareholders and members cooperate in a sale?
• Contracts – in addition to contracts with customers, a selling company may have contracts with landlords (leases), business loans, employment agreements, vendor agreements with materials providers, marking contracts or equipment leases. All contracts of the selling company must be considered at sale. Buyers may wish to take some but not all contracts. Leases for real property or equipment may require consent of the landlord or leasing company.
• Cash, Debts, Receivables and Payables – each of these will need to be allocated in the sale. Generally, a seller pays debts and keeps all or nearly all of the cash of the business to be sole. Accounts payable should be current.
• Employees – will key employees remain with the company after sale?
• Post-Sale Owner Employment – a buyer may want the selling owner to stay on with the company for a period after sale. During this time, the selling owner can help deliver the goodwill of the business by demonstrating the day-to-day processes for the business and help to maintain continuity of communication with customers, employees and vendors. Expect to negotiate a salary or hourly rate for post-sale services.
• Noncompete – California prohibits noncompete agreements, but there is an exception that applies to owners selling their business. A buyer will want promises from the selling owner that he/she will not operate a competing business in the same geographic area for a period of time.

(4) Marketing your company:  Open or confidential

There are two primary strategies used to sell a construction company here in Southern California or anywhere across the state;  Open marketing or a confidential sale.

• Open marketing. If you don’t care who knows come up with a marketing plan based on your industry.  You can market the business your self or use a business broker or business attorney to assist you.  We use our paralegal and legal staff to assist many of our clients get their listings out on the internet but also work with many fine business brokers as well.
• Confidential sale. Similar but requires a confidentiality agreement and some prospective buyer vetting.  Sometimes you do NOT want your competitors to find out who you are and also many times it is your competitor that wants to buy you.  So, a well written Non-Disclosure agreement will do the trick.  We  and the brokers we work with are very comfortable working with NDA and confidential marketing of companies.

All construction company owners should have some sort of exit strategy .  If it is time to sell a construction company in San Diego or Southern California we invite you to review the strong recommendations of our clients and contact us or call 858-535-1511 today for a complimentary and substantive consultation. 

The Watkins Firm represents dozens of construction companies and have sold construction companies in the past with great success.  We also have assisted clients with internal progression strategies to sell their companies internally.