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.

Systems

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

Cash flow is a larger issue in construction than in many other sectors, and this is due to the high value/cost, low volume and time-to-completion of the product. Consequently, there is a threat of cash flow becoming unmanageably negative. Establishing a ‘terms of business’ policy, which balances the commercial need for winning and retaining customers with financial prudence is crucial.     

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.