I would be remiss if I didn’t talk to you about selling your construction firm. Selling your construction firm is a reality to most contractors because at the end of their careers, they’re going to look around and they’re not going to have the energy or the inclination to manage their firm into their 80s. And so, you have to plan for that. Obviously, it’s going to be your last management act. If you’re looking at selling your construction firm, there’s some easy options and there are some more complicated options.
Let me go through the easy options. If you’re selling your construction firm, family is certainly a great first place to stop--that is, a son or a daughter, someone in your extended family who would be interested in managing or buying your construction firm. That might work well for you. That would be a great situation for both you and the other party. Another option of selling your construction firm of course is selling it to your employees and many people have done that. If you look at selling your construction firm to your employees, you certainly want to sell it not to the whole firm, a lot of people have warned against that but sell it to a capable and talented group of employees. Certainly that will keep the company focused, that will keep the business growing as it should. But sometimes there are no real core family members or people or employees that want to buy the firm and that leads us to a third, more complicated option, which is the selling of your firm to an unrelated third party. It may be another contractor--90 percent of all construction firms are sold to contractors, it’ll be important to remember. Certainly, there’s people from overseas, people from utilities that bought firms. But most of the time, it’s a construction contractor that wants to come into your town and expand their business. Sometimes they want to buy your firm for its employees, because you have many, many good craftspeople. But if you look at selling a construction firm, you certainly are going to do well to look at, you know, that kind of order between the family and the employees and the third party.
Now, remember, there’s a couple of things to consider here if you look at that option and if you want to take that option. One is that construction firms do not sell for a great premium. Somewhere north of 2 times the net earnings per year is what you’re going to receive plus the value in fixed assets. It’ll certainly be more for some firms and some may be a little bit more for other firms but you’ve got to look at that, it’s not a great price for a business that you’ve worked in for so many years. That’s what the business is. That’s what the market dictates and so if you take this logically and you already know this, then it makes more sense for you to work in that firm until your death, you’ll be better financially. But if your goal is not a strictly financial one, you certainly want to look at selling your firm and getting out from underneath with personal guarantees.
The second part of selling your firm to be aware of is that you should be aware of is that you always have to ask yourself the question, “What would I expect as the buyer? What would I want as the buyer?” If I’m selling this firm to somebody else, I’d have to think like them. And so, thinking like the buyer will help the discussions be more reasonable, it will help the discussions to be more gentlemanly, to be more amenable to each other and you won’t kill the negotiation prematurely. So look at selling your construction firm as some people have worked in that firm until their death and that’s their right. But if your goal is something else, selling the construction firm in the construction industry is a good option.