The Eight Things You Must Have to Sell Your Company

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On screen text, Wayne Rivers, Performance Construction Advisors

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WAYNE RIVERS: Hi everyone. This is Wayne Rivers at Performance Construction Advisors, where We Build Better Contractors.

This week I want to talk about the eight things you need to have to sell your business. I'll come back to that in a second. 

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Wayne lifts a paper with a graph showing two lines - a red line and a blue line.

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I don't know if you can see this or not. Maybe we can post it somewhere, a link to this, but if you can see this line, the red line is productivity across industries. The blue line, which is distressingly flat, is productivity in the construction industry. This comes from the Richmond Federal Reserve, and their theory is that, because regulations have become stricter and projects have become smaller... What? That's why productivity and construction has stayed flat since 1950, if you can believe it.

Now, when I'm talking to our members, their projects aren't getting smaller, so I don't know where that came from, but anyway, I'd like to know what you think. Email me [email protected]. And why is construction productivity flat since 1950? I'm stumped. Dennis and I talked about this all the time. I'm stumped. One other thing. We're having a webinar on March the 31st, so keep a lookout for that notification and it's going to be on cybersecurity. Construction is the number one most victimized industry in cyber crime, so all of our members need to be hyper aware of what's going on with their cybersecurity.

This week, eight things you need. Are you selling your business? Probably not. Most of our members don't sell their businesses, but here's a little secret for you. When you're thinking about working on your business, you should always work on your business as if you're going to maximize the value so you can sell it to outsiders. Why? Why do I say that? "Wayne, we have no intention of selling our business to outsiders. Why should I do that?" Because there is no downside to it. If you keep it in your family, no downside for your successors. If you keep it in your business family, no downside for your successors. You've built a well-oiled machine that runs. Finances are great, and operations are great, and project management is great and new business acquisition is great. Everything's great. You've got great people managing great parts of your business, and it runs like a well-oiled machine. What pray to hell is the downside? There really isn't one. I've been thinking about this for 30 years.

Now, I did a webinar a few weeks ago and it was a webinar for bankers who loan money to construction companies, and that's why I was there to give them construction flavor. And one of the guys was a banker who built up and sold his bank, Kurt Knutson. He also wrote a book called The Art of Selling Your Bank. Very bright guy. And so, he had some really interesting material that I'm borrowing for the purposes of this video. He had eight specific things you need to focus on in order to maximize your value if you're going to sell your business. "Now, wait a minute, Wayne. He advises bankers, PCA advises construction companies. What?" It doesn't matter if you're thinking about enterprise value, whether it's a construction company or a bank or an auto dealership or whatever it is, these eight things that Kurt talked about are universal.

But as he was talking through this, I was thinking, "Wait, didn't we do this? Didn't PCA do this, or back then FBI, do this?" We did. In 2012, Julian Bossong, one of our former consultants, very bright guy, and I came up with a list of seven things you need in order to sell your business. And it really translates. When I compared and contrasted, it really lined up really neatly next to Kurt's list. So I'm going to go down Kurt's list and I'll give you our list and talk about some things that I've observed and some things that are a little bit different.

The first thing you need is financial performance. Duh. You need to have a company that has nice gross margins, nice net margins, etc., etc. That's a no-brainer. The second thing, it's got to have growth potential. I agree with that 100%. Julian, and I did not include that on our list. Kind of a glaring oversight if you think about it. Number three, diversification. Sure, you don't want to have one big customer that if they shut down their account with you, you're a flop all of a sudden, so you need to have diversification in your business. We didn't put that on our list either.The fourth thing, recurring revenue. Yes, we said it. It needs to be recurring and predictable. So we had a little more definition in there on that one.

The fifth thing, you got to have a niche. Let me come back to that. We did say you needed to have a niche with barriers to entry. Well, construction has few barriers to entry. That's a fact. But with respect to Kurt's list, I want to go back to number three, diversification. Diversification is one of the keys, but then having a niche is one of the keys. And I haven't talked to Kurt about this and I'm not disputing his list at all, but I wonder if they're a little bit in conflict. How can you have a tight niche and then be diversified? Can you reconcile that? Maybe, but I struggle with it just a little bit.

Number six, customer satisfaction. We said it this way. We said customers, trade partners and suppliers that are loyal to the company, not just the purchasing manager or whoever. Number seven, cash flow. We didn't put that on our list either. Why not? Well, because we thought financial performance covered cash flow. Sure, you can be profitable and still have negative cash flow, but I just think if you have healthy, solid financial performance, cash flow has got to be a piece of it.

And the eighth thing that Kurt said was leadership independence. Wonderful. He's saying what I said earlier about building your businesses, if you're going to sell it, in order to do that, you've got to have leadership independence. And that means that you're not heavily dependent on one or two or a small handful of people to make every decision in the organization. You've got a flat organ... Not a flat organization. You've got decision making spread among your organization so that you're not horribly dependent on one or a tiny handful of people.

We didn't include that either. What we said, and I think we got it here, was, if you're going to sell your company and maximize your earnings, then you've got to have employees who are motivated to stay. A business purchaser's nightmare is, you purchase the business and then all the key people walk out the door and go across the street to compete. That is a nightmare. So we didn't say it as leadership independence. I like the way Kurt did it better, but we kind of covered that.

So what do you think? Let me hear from you, [email protected]. And are these the eight keys? Is Kurt right? Are we right? What did we miss? What did we leave out? I'd like to hear from you.

This is Wayne Rivers at PCA, where We Build Better Contractors.

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