How to Know When to Sell Your Construction Company

Timing is everything when it comes to maximizing your return.

Many business owners decide to sell their businesses at the market’s peak. But it takes a great deal of time to determine if the market has truly reached its peak. Before rushing to sell your business, you must be flexible in the timing of the sale. This is crucial to maximize the return you receive for your life’s work.

Do not wait until you decide to retire to get your business ready to sell. Some preparations can be made immediately, but others should be done years before. And if you miss the opportunity to sell, it could be years before conditions become favorable again.

Once your business is ready, several factors determine if the time is right, including the economy, your industry, your company and personal issues.

Economy

General economic conditions affect how much you will receive for your business and how quickly it will sell. In a down economy, buyers might be more concerned about survival than growth and acquisitions.

Plus, credit can be tight in a down economy, making it difficult for buyers to get adequate financing. And higher interest rates reduce a buyer’s rate of return, which means they might offer to pay less to compensate for the higher interest rates.

The economy runs in cycles. If you miss an up cycle, it could be years before the next one occurs. Unfortunately, it is impossible to accurately predict cycles. We cannot be sure we are in a recession until we have been in one for a period of time. And we only know a recession is over when it has been over for a while.

Consider selling only when the economy is strong, interest rates are favorable and credit is available. If general economic factors are unfavorable, you should wait unless personal factors cause you to sell.

Industry

Industries move in cycles just like the economy, but your industry might not move in the same direction or magnitude as the general economy. For example, people buy personal care items and necessities regardless of the economy’s strength.

But other examples are not so obvious. For instance, the owner of a high performance automotive parts manufacturer told us that his business generally did well during a recession. In the owner’s words, “A car buff restoring a ’67 Camaro might not go out to dinner when times are tough, but he will find the money to buy the parts he needs for his car….”

Regardless of the economy and industry type, all industries go through periods of growth and decline. Industries also fall in and out of favor with buyers. For instance, certain industries become hot for private equity firms to invest in, which drives up prices.

If you want to sell in the next several years, you must know the future of the construction industry. Talk to customers. Ask your suppliers how they are doing. Attend trade shows and industry meetings. You can learn a lot about the market for business acquisitions if you ask questions and listen.

Company

What are your company’s sales and profit trends? If a trend is down, you must understand why. Is this due to circumstances beyond your control? Or, is it in your control, such as the result of a poor management team? If it is a result of a management lapse, it is probably not a good time to sell. Take time to build a solid management team that can increase sales, improve margins and also run the business well in your absence.

Before improving or restructuring your management team, consider their tenure and whether or not they will be considering retirement around the same time as your own retirement. If they will be retiring, you might consider pushing back your retirement date while you expand your management team.

If you have a solid management team, and they do not plan on retiring anytime soon, you might consider moving your retirement date up and selling while you have this management team in place.

If the negative trend is something you cannot control and easily reverse (such as a competitor who has recently entered your market), it might be better to sell quickly before sales and margins deteriorate further.

If you are approaching retirement, and large time and money investments will be required to turn the business around, you should examine your circumstances carefully to decide if you should undertake such a large investment.

Personal

Personal factors might be the most important factor to determine when to sell your business. You must answer several questions. Do you still enjoy working? Do you have other interests that will occupy you happily if you no longer go to your business every day? Have you actually tried these pursuits to be sure the reality will be as good as your dream?

I have seen some entrepreneurs retire and discover six months later that they do not enjoy retirement as much as they thought they would. For some people, their work is their passion.

If you have a business partner, you also must consider his or her plans. If your partner’s retirement plans do not line up with yours, you must talk about this in advance of your retirement. For example, in one business tied to the housing market, the older partner wanted to retire at 65. However, his 55-year-old partner’s target retirement age was 62. The younger partner stalled the sale. Not only did this cause the older partner to work well past his intended retirement date, but as the economy turned downward, conditions in their industry turned very negative, and the value of the business plummeted.

Another personal factor to consider is your health and your spouse’s health. Health issues can force you into a sale at the least opportune time and possibly damage your business’ value.

Selling your business at the absolute peak time requires some luck in addition to a large amount of preparation. However, through planning, you can be sure you sell your business at a good time and secure the retirement you have always dreamed of.

Construction Business Owner, September 2011