When They Come Knocking

With most contractors who made it through the crunch of 2008-2009, the current economy in Wisconsin is looking bright. There is a big issue with the current growth – the strong demand for construction is coupled with a lack of skilled trades to fulfill the demand. It will take some time for new skilled trades to come on board.

So how are contractors filling out their rosters of talent? Some are increasing pay and benefits for their workers coupled with increased recruiting from competitors. Weaker contractors will find it harder to hold on to talented workers, which may cause a number of them to close their doors. You can’t build quality product without quality workers.

Still other companies are actively buying smaller contractors to get access to their skilled trades. As an owner, you have a responsibility to your customers, your employees, your vendors and your family to have a plan in place. What should you do if they come knocking on your door?

1. Know your business. You should understand how your business is valued and what the fair market value of your business is. This means getting an appraisal on your business. Since it is your largest investment, you should be getting an appraisal done from time to time in any event so that you understand if your investment is increasing in value or not. “Fair Market Value” is the baseline value for your business and doesn’t represent the potential value that you could sell it for to the right buyer, but it provides a starting point for any discussion.

2. Know your personal financial position. You should have a financial planner work with you so that you understand what your financial needs are to retire. Even if the acquiring company wants to keep you on board, you should know how much you will need to receive from the sale of the business for you to retire. If there is a clash down the road with the acquiring company, you want flexibility to leave.

3. Know the process. You will probably only sell one business in your lifetime. The people on the other side of the table have probably done this before. It is important to understand how the process works before you start a discussion. One of the key steps to the process is “due diligence.” This is the stage where the buyer gets to look “under the hood.” The list of documents normally requested can be both long and daunting. It is intended to uncover potential problems which will negatively impact the actual value of the company. If you have had an appraisal done, the appraisal normally involves its own due diligence, so you should have been able to identify and resolve potential problems proactively. The appraisal should also have enabled you to gather the documents normally required in a due diligence process, so it will feel far less invasive than if you see the list for the first time when you are already in negotiations.

4. Know your goals. If you are approached by a potential buyer, you should understand what your goals for the sale are, both financial and non-financial. Do you want certain employees taken care of differently than others? Are there company assets you want to keep? If you own your building, do you want it sold as part of the sale or do you want them to lease it? If so, for how long?

As the business environment heats up, the construction market has also become very active. This is causing an increase in acquisition of construction related companies who have skilled employees. The steps outlined above will help you to plan your financial future, as well as respond to the knock on the door.

David Buslee, CMA

David Buslee, CMA, is a partner in Clarity Management LLC, an ABC member. Clarity improves the financial performance of their clients by providing services which include CFO services, business valuation, banking and funding options, process improvement and business transition planning and implementation. Clarity specializes in closely held manufacturing, distribution and construction companies. For more information, visit www.Claritymgt.com or call 262-271-2522.