Matt Verderamo is a consultant at Well Built Construction Consulting, a Baltimore-based firm that delivers strategic consulting, facilitation services and peer roundtables for construction executives. Opinions are the author’s own.
Construction business owners — especially subcontractors and small-to-mid sized GCs — consistently face the same problem: setting up a successful exit strategy.
At the end of their careers, owners want to sell their equity stake in order to “get their money out,” i.e. collect the payout for all of their investment into the business over the years.
The question is: how do they collect that return? There are three typical options in construction:
- Sell the company to a competitor/market leader.
- Sell the company to a private equity firm.
- Sell the company to key employees.
In order to achieve the most profits when it’s time to sell, owners need focus on building value in their companies today. Here are three ways to do that:
Scalability
Valuable businesses are scalable. That means they have easily repeatable processes, functions and workflows. Four project managers on four different projects should do things the same way. The customer should know what to expect when they work with you. To achieve this you must set standard operating procedures.
Anyone who purchases your business wants to know that it runs smoothly. So, you should be focusing on how to make your business easily scalable. Write procedures, snuff out problems, train your people. It’s not super complicated, but it does take a tremendous amount of discipline.
Sales diversification
It is important to diversify sales in construction. Most construction companies focus on one or two key clients in one or two key sectors.
Then, a downturn hits, and all of the sudden they start chasing work with other clients in other sectors — but it’s too late. No one wants your bid after you ignored them for the last 11 years.
Anyone who purchases your business wants to know that it has a strong sales engine, driven by a good mix of clients in a good mix of sectors. That way, if a recession or any other economic hardship ever does hit, the business will be able to survive and thrive despite the greater market struggling to get work. This also implies a deep expertise that is highly valuable to a buyer.
In order to focus on how to diversify your sales you need disciplined business development efforts going at all times. You need to upskill your people to be proficient in multiple sectors. You need to say “no” to some projects so you can say “yes” to others with different clients in different sectors.
Make yourself obsolete
Many small to medium construction companies are a relative “one-man-show.” The owner is involved in bidding, project management and making sure the jobs get built in the field. They may even chase after payment. Nothing happens without going through the owner.
This is a problem. Your job is to make it stop.
No one wants to purchase a business that relies so heavily on one person. When the purchase happens, the owner may stick around for a year or two, but then they’re going to fade into retirement, leaving the purchaser stuck with a business that no one knows how to run.
On the other hand, businesses with a strong executive team are extremely valuable. This means you should be focusing on helping to build that team — one that covers the main functions of your business with relatively little oversight.
It will take years, lots of hard work and a high level of emotional intelligence, but these simple steps will pay off when it’s time to sell.
