Selling a construction company can be difficult. There are several obstacles working against you that you will have to overcome.
Low barrier to entry – Typically, it is pretty easy to get a position as a general laborer working in the construction industry. A lot of times, after someone has worked for a contractor for a little while, they decide that they have learned enough and they could easily go out and do it on their own. So they have some business cards printed up, and start telling people that they are a contractor, and bidding their own jobs. However, most of these guys don’t get licensed, they never had proper training, and it’s very difficult for a customer to know that they are a fraud until it is too late. When you are selling your business, you have to show that you are not one of those guys. If you are a trade, or usually work as a subcontractor under somebody else, it may be very difficult to sell your business.
Low class stigma – As absurd as it may be, a lot of industries are viewed by some as ‘low class’. Because of this, some people that have money are hesitant to invest in companies in those areas, and construction happens to be one of these. Interestingly enough, a lot of construction companies have huge margins and very high profit potential, but they are overlooked because of unconscious and unreasonable objections.
Poor bookkeeping – This is a problem in many small businesses, construction included. Often, when somebody isn’t planning on selling their company, they don’t view the financials as a particularly important part of the company. They often have poor record keeping and pay personal expenses out of the company, both which hurt the value of a company, if not diminish it completely. Somebody can’t pay for profits that they can’t verify.
High competition- Because of the low barrier to entry, it is a very competitive industry. There is a lot of cash involved, which means a large majority of companies aren’t paying taxes that they are supposed to, and they often pay their employees in cash, which saves them even more money. It can be difficult to run a legitimate business when you are competing against a lot of people that don’t follow the rules. You need to show that your business can still be profitable while following the laws.
All of these obstacles aside, a construction company can be a very profitable investment for the right person. As technology advances, larger companies are starting to take notice of the industry and are acquiring small mom and pop construction businesses. If you are considering selling, this may be the perfect time for you.