What is the Real Value of a Construction Company?
Buying or selling any business or company, including ones in the construction industry, is a huge decision that is not often made lightly or without plenty of thought and consideration. Business entrepreneurs take great care to have professional business valuations as part of the due diligence process before any purchase is finalized or the sale is closed.
Business valuations take into account several tangible aspects relating to construction business and its finances to come up with a fair market value for the business. Such aspects include the business’s assets, revenues, profits, cash flows, and so on. The valuation process ultimately deduces a business’s potential for making future earnings. Depending on the value determined, buyers and sellers then decide if they want to go through with the deal.
However, while important tangible assets and financials are very important in determining the value of a company, there are also various intangibles that need to be considered when buying or selling a construction company.
Before you decide to sell a construction company or look for construction companies for sale, you need to really think about the value of a company and everything that goes into the real value. Last year we also wrote a blog post about how to increase the value and sell a HVAC company , and how to value plumbing and electrical companies, that you may also find informative along with this article.
Intangibles that Add Value to a Construction Company
Construction businesses focus greatly on customer relations and relationships in general. So, while a construction company needs to have equipment and materials to work with, the business would not make it far without key relationships with customers, as well as the goodwill that comes with working with vendors and potential buyers and sellers.
Most construction firms rely more heavily on a skilled workforce rather than on equity or working capital. And certain intangibles are the key to a construction company's success and true value. So, when buying or selling a construction company, or even looking at different options for construction businesses for sale, be sure to keep some of the following intangibles in mind and consider how important they are when thinking about the complete and overall value of a business:
Relationships with Existing Customers
While contract lists can be counted, and you can choose to buy a construction company with a large client or contract list, that does not tell you much about the company's relationship with its customers. Good customer relationships are extremely important in building a loyal customer base and ensuring repeat customers. Not only do good customer relationships lead to a guarantee of future contracts and earnings, but they also improve a business's reputation.
When buying or selling a construction company, you also want to see if it has a good approach to its customers. Even though construction businesses are more contractual when dealing with customers, it is important to remember that they are service providers, at the end of the day, and the customers to those services are being provided to add significant value to the business.
How Reliably a Company Will Make Future Sales
A construction company might have a good record of making consistent sales and stable earnings, but that cannot always be an effective prediction for whether the company with reliably make sales in the future, especially during the transition period following the sale of the business. So, how can you tell if a company will have reliable and sustainable future sales? Well, while we certainly can look at past sales, we also have to consider the health of the market in the area where the company is operating, the general economic climate, and whether the specific services the construction company provides are recession resistant.
Another important factor that leads to reliable and sustainable future sales for a construction company is the good customer relations that the company has built. With good customer relationships, future sales can be more or less guaranteed as many of these customers become repeat customers.
The Effectiveness of the Management Team
Most construction companies rely heavily on having construction workers as a part of the team that is highly qualified, trained, and skilled. However, good construction workers are not always good managers, and the effectiveness of a construction business’s management team is imperative when considering the success and value of that business.
While skilled construction workers are very important for improving sales and customer relations, a construction business can hardly succeed without a management team to look after the workers, handling customer contracts, placing materials orders, and so on. Construction services can have very large scopes, and as such, they need to be managed effectively. Buying or selling a construction company with an effective management team adds value to the company. Additionally, if you are looking for a small construction company or a general contractor business for sale, be sure to take a look at how their management system is made up.
Trade Secrets of the Business
One of the biggest appeals of buying an already existing business rather than starting one from scratch is the trade secrets a business can amass when they have been operating in the industry for a given period of time. Trade secrets are business practices, designs, techniques, and other patterns that a business carries out due to extensive experience in the industry. Without this experience, a business may not have such trade secrets that can lead to better construction, better customer relations, and more sales. Whether you are buying a construction company or putting your own construction company for sale, any and all trade secrets can greatly add to the company’s value.
The Business has a Recognizable Brand
A recognizable brand is difficult to place a monetary value on but can add so much value to any business. In the case of the construction industry, where there is very high market competition and little to no barriers to entry, there are tens and hundreds of construction companies competing for a limited number of customers.
In such a case, a construction company with a recognizable brand would be much more valuable than a company that is not recognizable or does not leave any significant impressions on its customers. When buying or selling a construction company, be sure to consider whether the company has enough brand recognition to gain customers and increase sales.
Marketing is also essential when dealing with a highly competitive industry such as the construction industry. A construction company with a great marketing strategy, a strong online presence, and an effective way to reach out to and find new customers can be considered much more valuable than a company without any of these things. Strong marketing is also very effective when buyers are looking for construction companies for sale and can easily find the best options available.
Familiarity with the Operational Area
Similarly to trade secrets, the longer a business has operated in an area, the more familiar it will be with it. Familiarity with the operational area can add a lot of value to a business and is one of the big reasons why entrepreneurs choose to buy already existing businesses rather than start a business from scratch. With construction businesses, familiarity with the area means more vendor contacts, a better understanding of the community and what customers are looking for, a wider scope of the area and where new construction projects would do well, and so on. When it comes time to buy or sell a construction company, knowing the area is a factor that can bring a lot of value to the sale.
Employee Loyalty and Low Turnover
Skilled and well-trained employees are absolutely essential for a construction company. When you are looking to buy a construction company, don't just consider the number of employees hired by the company and their qualifications, but also take a look at how long the employees have been with the company and what the company's turnover rate is. If employees are loyal to a company and the turnover rate is low, it points towards good management and a company that takes the time to ensure employee satisfaction. With any construction company for sale, loyal employees are employees that are likely to stick around when the sale has been completed, which can be a huge value addition for the new buyer.
Synergy Between the Seller and Potential Buyer
Finally, when it comes down to buying or selling a construction business and the real value of the sale, the synergy between the seller and potential buyer is extremely important. It is important that the buyer feels like they are getting a company they can fit into and expand, and it is important that the seller feels like the company they have built from scratch and spent years growing is going into the right hands. For this to happen, both the buyer and seller must have similar goals for the future of the business.
The Bottom Line
Now that we have taken a good look at all of the intangibles that go into the value of a construction company, you might have better luck in buying or selling a construction company. When you keep factors like good customer relations, loyal employees, trade secrets, good management, and familiarity with the area in mind, you can take a new approach to look for construction companies for sale in Canada.
There are plenty of contracting businesses for sale as well that can be considered, not to mention a number of construction businesses for sale in Ontario. Many of these include small construction companies for sale, civil construction businesses for sale, excavation companies, general contractors, building supplies businesses, and so on.
If you are looking to buy a construction company or list your own company for sale, you can contact N3 Business Advisors.
Looking for Construction Businesses for Sale in Canada? Get in Touch with N3 Business Advisors Today!
Are you interested in construction businesses for sale? Or are you looking to buy a construction business? N3 Business Advisors is the company to work with. We are mergers and acquisitions experts in the construction industry and help to facilitate the sales of construction businesses in Ontario, Canada.
No matter what business goal you are looking to achieve, be it simply finding a business to buy, listing your existing construction business for sale, business expansion, obtaining a business valuation, or merging with or acquiring another business, our experienced and dedicated team is here to assist you.
Reach out to us now, and you can schedule a confidential consultation with our team to get started. Give us a call at 647-967-4222 or visit our website if you have any questions or concerns about our services.
N3 Business Advisors is located in Ontario, Canada, with our office at 55 Village Centre Place, Suite 200, Mississauga, ON L4Z 1V9.
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The information provided on opportunities listed on this website has not been and will not be verified by n3 Business Advisors Inc. or its representatives. No representations or warranties are provided by n3 Business Advisors Inc. or its representatives for accuracy, completeness or validity of any such information. Purchase and Sale of any business may have legal, tax and accounting consequences. Prior to making any financial decisions, it is the sole responsibility of the Buyer and the Seller, with the aid of an accountant and/or lawyer to independently verify all financial and other information and representations that have been made.