When I was first getting into the business of helping people buy and sell businesses, I was given a number of “tips.”
I was told to only represent good business 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 also was 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 mind a month or two later while a serious offer is being made.
I was also instructed to represent sellers whose opinion about the value of their business is responsible. And finally, I was highly recommended to shy away from contracting companies because buyers typically do not see their value. Contrary to the previous examples, this absolute has not proven to be true. Perhaps at one time this was the case, but recent sales activity paints a different picture.
I have been involved in a 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. 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 build the companies up and were ready to retire. Another common trait was that the seller’s 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 glamourous. 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 relationships the current owner has with their current customers. These businesses can also be difficult to market because of the need to maintain confidently. And, finally there are licensing issues involved with The State of Nevada Contractors Board, which can be dauting.
However, when the cash flow is strong, these challenges can usually be overcome.