When you ask a business owner when they plan to leave their business, they will most often say in about 5 years. This is particularly true in the construction world.
Five years gives you a safety net. It’s closer than 10 years, which seems too far away. On the other hand, it’s farther away than 2-3 years, which is too close for comfort. So, most business owners settle on 5 years. It’s the ultimate safe distance—close enough to appreciate it but not too close that you need to address it today. Once again, the logistics of leaving your company get pushed to the background.
If you currently own a construction company and you’re planning your exit in 5 years, what does your transition look like? Will you be selling the company? Do you plan to close up shop? Perhaps you’ve even considered selling to one of your key employees.
Most business owners envision a quick sale followed by the ability to walk away. Unfortunately that is more of a rarity than reality.
Construction companies with less than $30M in revenue take a 5-year plan to be able to be structured for a sale. The caveat is that you need to start working toward it today.
Fundamentally, construction companies fit in the “service industry” sale model. It is not a recurring revenue business model. The success of the company depends on continually getting new projects to keep revenue coming in. The company builds trust, respect, and relationships within the community to be able to keep a steady flow of projects coming in.
This means the majority of the value is in their relationships. Typically small businesses have their relationships intertwined with the owner. All of the current clients respect and trust the owner, which is why they work with this particular company.
When so much of the value of a company is directly related to relationships with the owner, it makes a sale very difficult.
Many times, I see construction business owners try to compensate by selling to a key employee or employee group. At the end of the day, this looks much more like a transfer over a sale. More often than not, the buyer doesn’t have money to buy the owner outright. The owner then has to carry the note or sell it over a period of time from the company profits. Your final payout is most likely 5-10 years out from when you leave the company. Needless to say, this is far from the ideal most business owners pursue.
This isn’t to discourage you from creating plans to exit your company.
In fact, it’s exactly the opposite. By highlighting the typical challenges associated with the sale of a construction company, it should empower you to take strides to prepare your company for selling. Given the right exit strategy, specific milestones, a plan and dedication to growing your company beyond your personal relationships, you can have the type of exit that you are envisioning. That includes the ability to sell to a third party who has the money to purchase your business outright.
Your business won’t suddenly develop tremendous value outside your personal relationships overnight. You need to start that process today.
Together, we can put you on the path toward realizing your desired exit for your business.
Many times, I work with owners who realize the need for an exit strategy, but pause when it comes to building one. Fear of the unknown or a sense that they are bound to the plan sets in. Having a plan in place doesn’t mean that you are tied to an exit in two years, five years, or even ten years. It means that you structure the business in a way that it gives you the option to exit when the time is right.
Creating options in the business gives you more freedom and choices. My goal when working with you is to help define and achieve your goals for the business. Should your goals vary down the road, we will adjust. The most important component is structuring the business in a way to help you achieve your goals and give you options when it comes time to leave it.
Together, we can do exactly that. Contact me today to start giving legs to your vision and legacy for the business.