How to buy a construction business
Buying or selling a construction business
Various factors mean that business value for construction companies is mainly in goodwill and not tangible assets. Selling or acquiring in this sector, therefore, mainly concerns goodwill value.
The goodwill in construction enterprises is made up of a number of intangibles, which are explained below. For a more detailed look at putting a value on a construction business in terms of goodwill, subscribe to the Business Sale Report.
Relationships with Key Customers
Good customer relations are essential in any construction company, as this can give a competitive edge when tenders are being considered.
Sustainability of Sales
Sustainability of sales is a key goodwill determinant comprised of many elements including not only the customer relationship as above, but also the nature (not just the quality) of the service/product provided, and the health of the market sector in which the customer operates.
The higher the proportion of maintenance business, the higher the value/earnings ratio of the business, as ongoing sales are more predictable. The structural nature of the maintenance is also important and term contracts (covering several years) boost the sales sustainability and business value. There is, however, a subtlety here.... Login to read the rest of this article
Strength of Management Team
The quality of management is even more important in construction than in other industries because it is a service-based activity where the service to be provided is often poorly articulated. Within construction there is also a wide variation in the quality of management.
Effective client and contract management systems are vital to a building business, and this is mainly because construction is a risk management activity.
Cash Flow Optimisation
For a comprehensive list of these factors and more, please subscribe to the Business Sale Report.
In conclusion, it is vital to do due diligence on a very skills-intensive business, where there are few tangible assets to fall back on. A good building business can buck the economic trend and provide good returns.