You can’t control the market when you eventually sell.
But you can control what you’re bringing to market.
For owners considering an exit in the next few years, these are seven areas worth focusing on.
1. Reduce Owner Dependence
This is arguably one of the biggest.
If you personally quote every job, manage the team, solve every problem and maintain every customer relationship, a buyer has to figure out how to replace you.
Start transferring responsibilities.
Develop supervisors.
Introduce management.
Document processes.
Give employees ownership over important parts of the operation.
The objective is simple:
Build a company that works without you.
2. Build Recurring Revenue
Buyers like predictability.
Maintenance agreements, service contracts and recurring customer relationships can make future revenue easier to forecast.
A commercial HVAC company with hundreds of recurring service agreements may look very different to a company relying entirely on new installations.
Look for ways to turn transactions into relationships.
3. Clean Up the Financials
Three years before selling is a much better time to clean up your financials than three weeks before selling.
Keep accurate accounts.
Separate personal expenses.
Record revenue properly.
Maintain clear payroll records.
Understand your margins.
Produce regular management reports.
A sophisticated buyer will eventually investigate the numbers.
Make it easy for them.
4. Diversify Your Customers
A $5 million business with 70% of its revenue coming from one customer carries significant concentration risk.
Work toward building a broader customer base.
The loss of one customer shouldn’t threaten the entire company.
5. Build a Strong Team
Good people are difficult to find.
A business with experienced employees, supervisors, estimators, project managers and administration already in place can provide enormous value to an acquirer.
You’re not just selling revenue.
You’re selling infrastructure capable of producing that revenue.
6. Create Systems
How do enquiries get handled?
How are jobs quoted?
How are employees onboarded?
How are projects managed?
How is quality controlled?
How are customers followed up?
If the answer is:
“Dave knows how to do it.”
You don’t have a system.
You have Dave.
Document the processes that make the company operate.
7. Build a Forward Pipeline
Imagine buying a construction business with almost no confirmed work beyond next month.
Now imagine buying the same company with projects contracted for the next 18 months.
Which feels safer?
A healthy forward pipeline can provide buyers with confidence around future revenue.
Just remember that the quality, profitability and contractual terms of the pipeline matter too.
Build the Business Someone Else Would Want to Own
There’s a useful way to think about preparing for sale.
Forget selling for a moment.
Ask:
“If I was buying this company tomorrow, what would worry me?”
Then start fixing those things.
The irony is that most of the changes that make a business easier to sell also make it a better business to own.
More management.
Better margins.
Cleaner financials.
Better systems.
Recurring revenue.
Diversified customers.
A strong pipeline.
Even if you don’t sell for another five years, that’s probably a business worth building.
Got questions?
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