PITFALLS IN SELLING
A CONSTURCTION COMPANY
Selling a construction company requires complex analyses and intense negotiations. The buyer is purchasing lots of moving parts – future project margins and cash flow, backlog, people, licenses, customer relationships, equipment, surety bonding, and contractual rights.
The biggest pitfalls are:
- Projects and Profits – need to be normalized, mitigating the appearance of thin margins, one-time expenses, and related party transactions.
- Backlog Risk – buyers scrutinize backlog margins, completion percentages, retainage, bonding needs, change orders, cancellation rights, and transferability of contracts.
- WIP Accounting – analyze over or under billings; percentage of completion estimates; retainage; accrued costs; and recognized losses.
- Hidden Liabilities – account for
- Warranty obligations
- Defective-work claims
- Mechanic’s liens
- Unpaid subcontractor
- Pending litigation
- Environmental issues
- OSHA/safety issues
- Unresolved insurance claims
- Contract Assumption – which ones require customer or surety consent
- Bonding Capacity – consists of current program, loss history, indemnities, and personal guaranty
- Owner Dependence
- Key Employees – including employee agreements and retention bonuses
- Personal Assets – separating family payroll and expenses, loans, and tools
- Working Capital Disputes – estimates of all factors to be considered prior to closing, as well as post-closing true ups