How to Sell a General Contracting Company

What a buyer reads first

The backlog comes first. A buyer asks for the schedule of signed work, with the contract amount, the cost to date, the cost still to come and the expected profit on each job. Backlog that is signed and starting soon is worth more than backlog that is verbal. They will also ask what has been bid and is waiting for an answer, and how often bids turn into jobs. A contractor who wins a steady share of what it bids, and bids on work it understands, looks healthier than one that wins by pricing low.

Buyers then ask where the work comes from. Repeat customers, a few developers or property owners who call every year, are the best source. Public bids are a different business with thin margins and heavy paperwork. Residential remodeling, light commercial work, tenant improvements and ground-up construction each attract different buyers, and a contractor who does all of them needs to show which is profitable.

Customer concentration matters. If one developer produced most of the revenue last year, the buyer will ask what happens when that relationship changes. Our post on customer concentration explains how this affects the price.

Job cost reports and the work in progress schedule

Contractors do not earn money the way a store does, and buyers who are not familiar with the trade are surprised by it. Revenue is recognized as work is completed, and the books at any moment hold a mix of jobs that are ahead of billing and jobs that are behind it. A contractor who has billed more than it has earned has taken the customer's cash early and owes the work. One that has earned more than it has billed is waiting to be paid.

The work in progress schedule shows this job by job. A buyer will read it with an accountant, comparing the estimated profit at the start of each job to the profit expected now. If the estimates keep shrinking, the buyer concludes the company underprices its work. If they hold, that shows a disciplined estimator. Fix any mistakes in the schedule before a buyer sees it. Our post on quality of earnings reports describes the review a buyer's accountant is likely to perform.

Retainage deserves a line of its own. Customers often hold back part of each payment until the job is done, and subcontractors are paid the same way. Buyers add up what is held both ways and want it to be collectible.

Licenses, bonding and insurance

A contractor's license is usually tied to a person who qualified for it, often the owner. That arrangement is a central question in a sale, since a buyer who does not hold a license cannot use yours. Rules vary by state and your attorney confirms what applies. In practice we plan for a qualifying person to stay on, to be hired, or for the buyer to bring their own. This should be discussed early.

Surety bonding is another gate. Many jobs, especially for public owners and larger private ones, require a bond, and a surety will only issue it to a company with sound financials and experienced management. The buyer's bonding capacity depends on their own financial statements and the surety's view of the combined company. Ask your surety agent how they would treat a change of ownership, and ask your insurance agent about your workers compensation experience rating, since a poor safety record shows up in both the cost of coverage and the ability to bid. Buyers will request loss runs, certificates and the history of any claims.

People, equipment and subcontractors

The project managers and superintendents are what make a contractor run when the owner is on another job. Buyers want to meet them, learn how long they have been there and see how they are paid. A key estimator who leaves after the sale takes the pipeline with them. Retention arrangements that reward them for staying through the first year are common, and we help owners think through them.

Subcontractors are a second team. Buyers ask which trades the company uses, whether the same crews come back, whether subcontractor agreements and insurance certificates are on file and whether lien waivers were collected on every payment. Gaps in that paperwork produce disputes after closing.

The equipment list usually shows trucks, trailers, small tools, a few larger machines and a yard or shop. Some contractors own very little and subcontract the rest. Others own a fleet. Buyers look at the age and condition and at whether the equipment is owned, financed or leased.

Warranty exposure and open disputes

A finished job does not end the contractor's obligations. Warranty claims, punch lists and disputes over defects can come back months or years later. A buyer will ask for a list of completed work still under warranty, any open claims, any demand letters, any lawsuits and any liens filed on or against the company. They will also ask how the company handled problems before. A history of resolving things quickly and keeping customers is a positive sign.

The structure of the sale matters here. Most buyers prefer to buy assets and leave old liabilities behind, and sellers often prefer the same for tax reasons. Contracts, licenses and bonds do not always move easily in an asset sale. Our post on asset sales and stock sales goes through the tradeoffs. Contracts that need a customer's consent to be assigned should be identified before the buyer asks.

The records a buyer will ask for

Expect requests for business tax returns, monthly financial statements prepared on the same method each year, the work in progress schedule, aging reports for what customers and subcontractors owe, contracts for jobs in progress, bonding and insurance documents, the license file, the equipment list and payroll records. Many contractors keep two sets of numbers, one for the tax return and one for the bonding company, and a buyer will ask why they differ.

What tends to sink a sale

The usual causes are a backlog thinner than the owner described, a work in progress schedule that shows margins fading, an owner who holds the license and every customer relationship, a bond that cannot be moved, and warranty claims no one had mentioned. A key project manager leaving mid-sale is the most common trigger. Confidentiality matters, since customers and subcontractors worry when a contractor changes hands. We market without naming the company and require a nondisclosure agreement.

How to prepare

Begin with the schedule of jobs and make it clean. Update your job cost records every month. Get your bonding agent and insurance agent in a conversation about your plans. Choose who will hold the license after you. Write down how you estimate a job and how you decide what to bid. Introduce the buyer's future leadership to customers gradually, in the last year if you can.

Business Advisors of America starts with a valuation based on your own numbers, builds the package a buyer and surety will expect and screens buyers before the company is identified. For more on selling a general contracting company, that page is the place to start.

This article shares our opinion and general information. It is not legal or tax advice. Always speak with a licensed attorney for legal advice, and a qualified tax professional for tax questions, before you act.