Why Won’t My Construction Business Sell?
If your construction business isn’t selling, you’re not alone. Up to 80% of businesses with revenues under $1,000,000 fail to sell when brought to market. Why is this rate so high, and how can you improve your chances?
1. Pricing: Many businesses are overpriced when listed for sale. Sellers often skip getting an independent, realistic valuation and base their asking price on what they need to obtain rather than the actual market value of the business. So, get someone who understands the construction industry to determine what your business is worth.
2. Owner Dependence: Many small construction businesses rely heavily on the owner’s relationships and expertise. Potential buyers may worry that, without the owner, customers will leave, and operational efficiency will drop. They will move to the next opportunity as they have plenty of other construction businesses to choose from.
3. Industry Risks: Construction firms face inherent risks, such as building defects, safety concerns, and legal disputes. If the business has a history of legal issues, buyers may hesitate and give your business a pass.
4. Workforce Challenges: Buyers may worry about maintaining quality and efficiency after the sale if your business struggles to hire and retain skilled employees.
5. Lack of Diversification: A business overly dependent on one market segment or a small group of clients carries more risk. Diversifying your customer base and services can make your business more appealing.
6. Limited Growth Potential: Buyers are often looking for growth opportunities. If they feel the market for your business is saturated, they may see limited potential for future revenue growth.
7. Poor Financial Records: Buyers want to see accurate financial records and tax returns. Incomplete or unclear financials can be a major red flag. Hire a bookkeeper or office administrator to tidy things up.
8. Marketing Strategy: Is your business being marketed properly? Selling a business on your own can be challenging. Although business broker commissions are high, a professional broker might increase your chances of finding the right buyer.
9. Condition of Equipment: Buyers will scrutinize the condition of your equipment. They may be reluctant to invest in a business that needs significant capital injections for repairs or replacements.
10. Sale Structure: You may be aiming to sell shares to maximize the after-tax proceeds, but many purchasers will only be prepared to buy the business assets. This mismatch can deter potential buyers.
The best approach is to address these issues before you sell rather than after you have started marketing the business. However, some problems may be insurmountable and render the business unsalable as a going concern. Your only option may be to close the business and liquidate the assets.
My book, Maximizing Business Value Construction Companies, addresses all aspects of the sale process including preparing the business for sale.