Buzz Harris: Transactions with contracting businesses is complex (Voices)

When I was first getting into the business of helping people buy and sell business, I was given a number of “tips.”
I was told to only represent good businesses with a track record of positive cash flow. This has stood the test of time because after all, if the current owner has already proven that the business hasn’t made a profit, why would a buyer pay money for it?
It was also recommended to only bring into my portfolio sellers who are motivated, not just having the ego stroked. This principal has also proven to be true. It can adversely affect a broker’s relationship with a legitimate buyer when owners have a bad week (or two) and think they want to sell only to change their minds a month or two later while a serious offer is being made.
And finally, it was highly recommended that I shy away from contracting companies because buyers typically do not see their value. Contrary to the previous examples, the absolute has not proven to be true. Perhaps at one time this was the case, but recent sales activities paint a different picture.
I have been involved in the sale of a number of different contracting businesses. There was the roofing contractor with very strong market share who was purchased up by a competitor. There was the landscape company that was acquired because of the synergies it offered to the buyer. There was the flooring company that was purchased by an existing employee because of its potential. There was the drywall company that was bought by a local lawyer who had grown tired of being a lawyer. There were the buyers from New Jersey who purchased the home-improvement company as part of their relocation.
Although these examples represent all different types of contractors, they all had the characteristics that legitimate buyers were looking for.
For starters, they had been profitable for a number of years. In all cases, the sellers had built up the companies and were ready to retire. Another common trait was that the sellers’ expectations were realistic.
Now, I’m not saying that this category of business is an easy transaction. In some of these cases, the business itself might not be terribly glamorous. In other cases, the pool of prospective buyers can be limited because of the technical knowledge a buyer may need to run the business. Another challenge is the potential effect of losing the relationship the current owner has with their current customers. These businesses can also be difficult to market because of the need to maintain confidentiality.
And finally, there are the licensing issues involved with the State of Nevada Contractors Board, which can be daunting.
However, when the cash flow is strong, these challenges can usually be overcome.
Buzz Harris is a Licensed Business Broker with The Liberty Group of Nevada. Contact him at BHarris@TheLibertyGroupofNevada.com.