4 Ways General Contractors Can Increase The Value of Their Small Business

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By Chris Giambrone, CFP

As a construction pro, you’re a master at building or improving properties for your customers. But as a business owner, are you just as focused on building a successful, sustainable business model for your future buyer?

When you first started your business, you probably weren’t thinking about the day you might sell it to someone else. But now that thoughts of retirement have entered your mind, it’s time to begin planning your exit strategy more seriously.

Chris Giambrone

One of the most important parts of that exit strategy is increasing the value of your business to make it more attractive to potential buyers.

With that in mind, below are four ways general contractors can increase their business value to attract potential buyers and garner an attractive price:

1. Attract & Retain High-Quality Talent

When buyers acquire a business, they want a smooth transition. If your key workers are highly skilled, trained, and professional, that’s a green flag for prospective buyers. Happy, committed employees indicate that your company culture is strong and your internal processes run like a well-oiled machine.

One of the first steps you can take toward increasing the value of your business is to take inventory of what you offer as an employer and make improvements if necessary. Current industry problems, such as shortages of general labor and skilled workers, are likely to continue. While this is surely a challenge, it’s also an opportunity to make your business stand out.

There are several ways to bring in and keep top-tier workers. One of the easiest, of course, is to promote your superstars from within and offer opportunities for advancement to current employees. Implementing these promotions now will give you a head start on preparing your key workers for future transitions.

Additionally, if you’re struggling to attract new hires (which wouldn’t be a surprise in today’s labor market), consider how you can increase your company’s appeal. Paying competitive wages is important, but it isn’t the only way to attract new talent. You might also improve your company’s safety standards, benefits package, or opportunities for further education.

Ultimately, think about what today’s talent is looking for in their career and how you can match their expectations and desires. Building a strong, reliable team will make your business stand out to potential buyers, as they won’t have to come in and completely overhaul after your exit. (Plus, this benefits the employees you care about as well!)

2. Specialize Where Possible

Businesses that specialize in one way or another may also stand out more to prospective buyers. By concentrating on just a few core work areas or committing to a specific company value, you can fine-tune your craft and develop a niched team of professionals.

Specializing may allow you to raise your prices, enjoy greater profits, and even develop a stronger community presence, ensuring the longevity of your business. All of these things are particularly attractive to prospective buyers.

When niching down, consider consumer and industry trends that may be attractive to your community and buyers. For example, becoming an environmentally-conscious construction company is one way to set your business apart from others and demonstrate commitment to a core value. Alternatively, identifying a unique need in your community, such as lakeside landscaping architecture as an example, is another opportunity for specialization.

Once you’ve done this, you’ll be able to prove to prospective buyers why and how your business is built for long-term success in your community.

3. Master Your Cash Flow

Cash flow constraints can be particularly problematic for general contractors and construction companies, especially contractors who are rapidly taking on new work. These individuals are more prone to the risks of negative cash flow. As a result, it’s essential that you address any cash flow issues before it’s time to put your business on the market.

Cash flow issues can come from a variety of sources, including time lags between sending invoices and collecting payment, sending advance payments to suppliers, overstocking inventory, and project delays. You’ll need to discover which are affecting your business the most and address those problems accordingly.

Mastering your cash flow may involve establishing a (better) credit line with a bank, decreasing tax liabilities, or improving the accuracy of your forecasting and budgeting. Working with an advisory firm that understands the unique challenges faced by general contractors can help you take control of your cash flow with more confidence.

4. Streamline Work Processes

The world of general contracting can be a hectic one. Between hiring reliable subcontractors, paying workers, keeping track of equipment, and adapting to supply chain problems, it’s easy to become overwhelmed by obstacles. That’s why your processes need to be streamlined to address potential challenges before it’s time to sell your business.

If you want to increase business value, you need to increase productivity and decrease inefficiency. Since time is your most valuable resource, identify the areas where time is being used inefficiently. Then, seek technological or outsourced solutions to get that time back. Below are examples of ways to get started streamlining:

Project Management Technology: To streamline your processes, take advantage of technology that’s been specifically designed to help general contractors stay on top of their projects. Softwares such as Buildertrend or CoConstruct can help contractors create detailed estimates, schedule jobs, and send invoices — all from a single platform.

Outsource More Functions: As a general contractor, you’re a master of DIY. But when it comes to running your business, DIY isn’t always the best option — especially when you’re looking to sell your business. If tasks such as scheduling jobs, sending out payment reminders, or filing taxes are taking up too much of your bandwidth, consider outsourcing these tasks to a pro who can take them off your plate.

Improve Communication: Team members have to be on the same page. If they aren’t, projects are subject to turbulence and delay. Depending on your business, you might consider improving on-site management, communication systems, or defined worker expectations.

Streamlining these different workflow processes will make any transition easier on a buyer — and will make your company all the more attractive when it comes time to negotiate the value of your business.

Now, Create a Business Exit Strategy

It’s normal to feel overwhelmed when the selling of your business is in sight and retirement is near. But entrepreneurs who fail to act strategically risk trying to sell an efficient, low-value business — with long-term consequences for their retirement.

Business buyers want to see companies that are adaptable, scalable and offer an easy transition. And they’re willing to pay more for companies that meet these expectations. For these reasons, it’s paramount that you stay focused on increasing the value of your business.

By investing time to increase your business value, you can set yourself up for success not only in selling your business, but also in building your wealth.

About the Author: Christopher C. Giambrone, CFP®, AIF®

Chris Giambrone is a co-founder of CG CapitalTM, a boutique wealth management firm based in New Hartford, N.Y. He is a CERTIFIED FINANCIAL PLANNERTM and Accredited Investment Fiduciary®(AIF®). Chris has also earned a Certificate in Retirement Planning from the Wharton School of Finance at the University of Pennsylvania.

Branch Address: 139 Genesee Street, New Hartford, N.Y. Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser. Branch Phone Number: (315) 765-6032.