This audio is automatically generated. Please let us know if you have any comments.
Matt Verderamo is a consultant with Well Built Construction Consulting, a Baltimore-based firm that provides strategic consulting, facilitation services and peer-to-peer panel discussions for construction executives. The opinions are the author’s own.
Matt Verderamo
Permission granted by Well Built Construction Consulting
Owners of construction companies, especially subcontractors and small to medium-sized GCs, constantly face the same problem: establishing a successful exit strategy.
At the end of their careers, owners want to sell their equity stake to “cash out,” that is, get paid for their entire investment in the business over the years.
The question is: how do they collect this return? There are three typical options in construction:
- Selling the company to a competitor/market leader.
- Sell the company to a private equity firm.
- Sell the company to key employees.
In order to get the most profit when selling, owners need to focus on creating value in their businesses today. Here are three ways to do it:
Scalability
Valuable companies are scalable. This means they have easily repeatable processes, functions and workflows. Four project managers from four different projects should do things the same way. The client needs to know what to expect when working with you. To achieve this, standard operating procedures must be established.
Anyone buying your business wants to know it’s running well. Therefore, you should focus on how to make your business easily scalable. Write procedures, eliminate problems, train your people. It’s not very complicated, but it does require a lot of discipline.
Diversification of sales
It is important to diversify sales in construction. Most construction companies focus on one or two key customers in one or two key sectors.
Then there’s a slump and suddenly they start chasing work with other clients in other industries, but it’s too late. Nobody wants your offer after you’ve ignored them for the last 11 years.
Anyone buying your business wants to know that you have a strong sales engine, driven by a good mix of customers in a good mix of industries. This way, if a recession or other economic hardship ever occurs, the company will be able to survive and thrive despite the large market struggling to get work. This also implies a deep experience that is very valuable to a buyer.
To focus on how to diversify your sales, you need disciplined business development efforts at all times. You need to upskill your people to be competent in various sectors. You have to say “no” to some projects in order to say “yes” to others with different clients in different sectors.
Make yourself obsolete
Many small and medium-sized construction companies are a relative “one-man-show”. The owner participates in tendering, project management and ensures that jobs are created in the field. They can even pursue payment. Nothing happens without going through the owner.
This is a problem. Your job is to make it stop.
No one wants to buy a business that is so dependent on one person. When the buyout happens, the owner may stick around for a year or two, but then they fade away until retirement, leaving the buyer stuck with a business that no one knows how to run.
On the other hand, companies with a strong executive team are very valuable. This means you should focus on helping to build that team, one that covers the core functions of your business with relatively little oversight.
It will take years, a lot of work and a high level of emotional intelligence, but these simple steps will pay off when it’s time to sell.
