How to Sell a Building & Construction Business
08/12/2020
Selling Your Business?
Get Free Confidential Expert Advice
Do you have a building & construction business you want to sell, but don’t know where to start? You may be worried about the process, but with the help of this guide, and other tools across the Knowledge Hub, we can help.
The construction industry is worth £110 billion. This makes up 7% of the UK’s total GDP.
The private sector is responsible for three-quarters of this amount, demonstrating its scale, making it a promising industry for buyers.
This includes categories from development & property services to fencing, roofing & scaffolding.
This guide will take you through the whole process from valuation advice, how to prepare your business for a sale, negotiation tips, to finalising the deal.
Valuing a Building & Construction Business
To assemble an accurate valuation for your business you must combine its assets and its goodwill attributes, this will create a holistic valuation of the business.
Your business’ assets will vary according to the type of building & construction sector you are in.
Using a builders’ merchants as an example, let’s look at its assets:
- Vans, lorries & cars for distribution
- Materials such as; timber, bricks, paint & plumbing supplies
- IT equipment such as; Point of Sales system, software, CCTV
- Retail & storage property value, if owning and selling the freehold
Having high-quality assets means the buyer won’t need to worry about replacing any items soon, and so, providing better value for money.
Although it is trickier to calculate the goodwill value of a business, it is essential to include to get an accurate valuation.
When estimating your building & construction business’ goodwill attributes, it’s important to consider the following:
Let’s use a scaffolding business as an example.
- The average working capacity of the business. We recommend calculating this from information over the past two years of trade.
- Local reputation
- Current & future contractual agreements
- Loyalty & motivation of staff
We suggest using a professional business broker when valuing your business. Owners often have an emotional involvement with their business which can make it difficult for them to make an objective valuation.
At Intelligent, we have a dedicated expert team with years of experience in calculating the value of hundreds of building & construction businesses.
We use a tailored approach depending on the business’s characteristics, but we use the same basic formula as shown below:
Adjusted Net Profit
This calculation takes into consideration any exceptional costs that the business has incurred. These exceptional costs are not considered part of the normal course of business and should therefore be excluded
Market Multiple
We analyse buyer behaviour and transactions regionally and nationally. We overlay our experience, sector knowledge and understanding of market trends to provide a real time market multiple
Assets & Liabilities
An asset is something that the business owns and is a key factor in determining the businesses value. These include such things as property, stock and equipment. A liability is the opposite of an asset and includes things such as loans, tax and mortgages
Use Our FREE Business Valuation Calculator for an Instant Valuation
Preparing a Building & Construction Business for Sale
To be fully prepared for your sale, it’s vital you have all the necessary documents and information in advance. This means you are ready for any questions from prospective buyers.
Being prepared will make for a more efficient seller journey, it will also make you seem more professional and confident to buyers.
That’s not all.
By fixing any problems with your business you can be assured that you will receive the best possible price.
Below we have highlighted key areas to focus on when preparing your building & construction business for sale.
Review Your Management Structure
It is important to have a clear management structure when you’re preparing to sell.
Although some buyers may want to be involved with the day-to-day trade of the business, some may want to operate it from a distance. Therefore, having a clear management structure in place makes your business attractive to a wider audience.
Are you a hands-on business owner? Why not start delegating more responsibilities to your current managers and/or team leaders.
Documents & Financial Statements
We recommend you to have at least three years of financial statements prepared, ready to show interested buyers. This usually happens at the enquiry stage - for more on this see our guide on enquiries and viewings.
Sharing your business’s financial health at this stage will aid buyers in their decision as to whether your business is a suitable choice for them.
The financial documents you will need:
- Cash flow
- Profit and loss
- Balance sheets
Make sure you’re as honest and as accurate as possible, as the buyer will undertake due diligence which will highlight any discrepancies in your financial history.
Also remember to include:
- A list of all assets, such as fixtures, fittings, and equipment
- Up to date hygiene certificates
- Other legal documentation, which may include leases, insurance, licences, and other permits that should all be fully compliant and up to date
- Incorporation documents
- Management structure
- Employment contracts, which should be reviewed by yourself for the buyer’s convenience and to guarantee a strong staff team will be in place
- Stockist information, to demonstrate you have secure stockist relationships already in place
Negotiating the Sale
After enquiries and viewings, you will begin to negotiate what’s included in the sale and deciding on a price. Having your documents prepared in advance means you’ll be able to negotiate more efficiently and professionally.
At this point, the buyer will be extremely inquisitive, but remember, you should also be considering their potential to own and run your building & construction business successfully.
The decisions that are agreed upon will be written in a ‘Heads of Terms’ or ‘Letters of Intent’ document, which both parties will sign. It will include the final sale price, the sale’s terms, and a thorough itinerary of everything included.
Be aware, although at this point the sale is now formalised, it isn’t yet legally binding.
Deciding on Payment
You must then decide on a payment plan. The buyer may be able to pay in a lump sum, but if they can’t you could offer to do owner financing, with a larger total sale price.
It’s important to get specific protective legal advice as you could be at risk of a buyer default. So, it’s important to use a good solicitor.
We can help with that.
Using an Intelligent trusted partner, you’ll save time and money. Sellers complete on average 4 weeks earlier than the industry standard and our negotiated savings are passed on in full.
Next, the buyer will undertake due diligence. This is done by the buyer and their team of professionals.
For more advice on this check out our in-depth guide, but essentially it involves scrutinising your premises, finances, assets, liabilities, clientele and reputation, as well as external threats and competition.
Finalising the Sale
Hooray! You’ve made it to the final stage of selling your business.
If all the buyer’s checks are clear, they will be able to commit to a final, legally-binding ‘Purchase of Business Agreement’. This will look like the ‘Heads of Terms’ or ‘Letters of Intent’ document from the negotiation stage.
However, if any falsehoods have been revealed, it’s likely this would lead to renegotiation. In a worst-case scenario, the buyer may drop out of the deal.
That’s why we recommend that you’re honest from the start.
Also ensure you have gathered any necessary permissions from landlords and banks for the transfer of premises, equipment, and liabilities.
Once these documents are finalised and the money is transferred, you have officially sold your business.
Congratulations!
Just a note on the handover…
It can be immediate or transitional.
An immediate handover is when there is a sudden shift in ownership and management. From this point, the buyer is now responsible.
With a transitional handover, the exchange is more gradual.
The terms of this handover are to be decided between you and the buyer. Usually, the seller will stay on for a transitional period of a couple of weeks or months. We recommend this type of handover where possible.
It is more likely to result in successful new ownership and is, therefore, more attractive to buyers.
Related Guides
There you have it, your ultimate guide to selling your building & construction business.
It may seem like a long process, but a little preparation goes a long way, and it will help you to achieve the best possible sale price.
Selling with Intelligent removes the stress so that you can focus on your business instead.
We have a dedicated expert team who will work hard to fully understand your business and what makes it unique, giving you peace of mind.
Why not get a free, instant valuation of your business via the tool below?
Click Here to Use Our FREE Business Valuation Tool
Get quick and easy insight into the real value of your business, without any obligations.
At Intelligent, all of our experts use a specific formula that will give you a free and highly accurate baseline valuation so that you've got a figure to work with that most realistically resembles the value of your business.