At some point, all builders will leave the companies they’ve spent years building. Ideally, their departure will be by choice, at the time and in the manner of their choosing. For others, illness or death may make the decision for them.
Regardless of fate and fortune’s role in an owner’s departure, builders who plan for their company to eventually be run by someone else will be much better off, as will their employees and family members.
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Ken Jensen, managing director at Aspenwood Capital in Denver, and former owner of BAC Appliance Center recommends that while business owners grow their firms, they keep their exit in sight.
“There’s an old saying that you should prepare to sell your business the day you buy it,” Jensen told Colorado Builder. That way, whether builders intend to transfer the business to staff or sell it to fund a retirement or estate plan, it will be a viable asset.
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Jensen shared some things builders should do now to get their business ready to sell, whenever that time comes.
Create a consistent client base. Builders with a strong marketing plan and consistent stream of business will be a more attractive target for buyers, according to Jensen.
Build a strong management team. Owners who want to sell their business need to find a team that can run things without the owner. Gone are the days of hostile takeovers, where an investor would buy a company and immediately gut it of the management team.
It’s not that builders have to distance themselves from day-to-day operations, Jensen said, but they should make sure that “most of the work is being done [by], and the knowledge of what needs to be done is held within, the management team and not wholly with that owner.”
Identify and maintain income targets. Jensen said most private equity firms or institutional buyers will want to see a minimum of $2 million in EBITDA.
“If you’re under that, you’re going to be looking for more of a strategic buyer,” Jensen said. “You might be selling out to one of your competitors locally or looking for a larger builder who is trying to expand into this region.”
Keep turnover low. Labor is a hard problem for the whole industry, but serious offers won’t come in for businesses that can’t keep talented employees in the fold. Investors and buyers “don’t want to come in and turn businesses around,” Jensen said. “They want to buy a viable business that they can just move in.”
Hire an expert. These can be complicated transactions, and builders may need dedicated experts to make sure their interests are appropriately represented. A financial planner can help make sure the owner is personally ready to stop working in the business, and a valuation expert or merger and acquisition representative may be necessary to make sure the owner gets what the business is worth.
Builders who work with an advisor to help them sell their business should look for someone with a network of other experts like attorneys or tax advisors whom they collaborate with, or to whom the advisor can refer the builder.
Get emotionally ready. It’s easy for business owners in any industry to underestimate the emotional weight of moving on from a business they’ve spent decades building. Sadly, Jensen said, he sees more builders simply close their doors and walk away instead of taking advantage of the equity they’ve built.
“A lot of builders don’t feel like they have anything of value so they just close their doors,” he said. “They get to a point where they’ve never been in a situation where they’ve tried to sell their business and no one’s told them that it’s worth anything.”