Succession planning can present a formidable challenge for principals in privately held construction companies. This is especially true if there are no family members or key managers who are ready to take over the business.
As retirement approaches, it can be tempting to begin tapering off and building up cash while you look for a buyer. However, such an approach can seriously diminish your business’s value.
Here are three important points to remember if you’re thinking about selling your privately held company soon.
1. Keep working on the backlog. Most of your business’s value comes from its future revenue potential. But don’t let your pursuit of new jobs get in the way of quality. Low-margin contracts or projects with questionable financing will lower the value of your business.
2. Keep equipment, vehicles and other assets in good repair. Stay up-to-date with scheduled maintenance and replace aging equipment as necessary. A healthy backlog is less valuable if the new owner will need to replace old, worn-out equipment in order to perform the work.
3. Clean up the operations – and the books. Strip out any non-operating assets and extraneous business operations or spin-offs. Be careful not to pay any personal expenses through the business. If the books are not clean, prospective buyers will discount the value of the business for their own protection.
Also, be sure you’re paying yourself a reasonable salary rather than relying on capital distributions for income. Taking only a token salary distorts your company’s true profit picture, so most buyers will make further downward adjustments before making an offer.