As the economic damages of COVID-19 begin to dissipate, new and paused construction projects are starting to pick up. Charlotte, NC, and the surrounding areas are seeing steady growth in the construction industry. Residential building permits, in particular, are set to increase for the third year in a row. If you’ve been looking to buy a construction business in Charlotte, North Carolina, now may be the right time. However, knowing how to buy a construction company in Charlotte, NC, before you get started will allow you to feel more prepared and confident before submitting your offer.
CHOOSING A CONSTRUCTION BUSINESS FOR SALE IN THE CHARLOTTE AREA
Before looking for a construction company for sale, it is important to understand how the industry works and what challenges you might face. For example, if you are not intimately familiar with the cost of construction projects, now is the time to do some research. General contractors must know how to factor the cost of materials, labor, insurance, and more into the price for each job because it’s crucial to a construction business’ bottom line. If estimates are not correct, or if the project is under poor project management, you may overbid and risk losing money.
During this step, you may want to analyze the construction market in Charlotte, NC. For example, in the third quarter of 2021, there were 25 approved projects and over $1B in related investment capital. Having a rough idea of the current construction industry data allows you to loosely grasp whether or not it will be a profitable business in the future.
It is a good rule of thumb to stick to service businesses with good reputations and that are known to treat their clients and employees well. General contracting companies often rely on referrals, so get to know their customer demographics by looking at past projects and client reviews.
Another factor to consider learning more about is the business’ competitors. The seller might provide you with a list of competitors, but a simple Google search for construction businesses in Mecklenburg County would also be helpful. Then review the project history of those companies to have a better idea of what you will be up against. To make a more informed buying decision, work with a business broker who has experience in the construction industry.
6 STEPS TO PURCHASING A CONSTRUCTION COMPANY
Once you determine which business you’d like to move forward with, you can move on to the following six steps you need to take before reaching the transition of ownership.
1. UNDERSTAND THE BUSINESS
After finding the perfect construction business for you, you should spend time learning about the company and evaluating what the sale includes. Get a feel for what construction services they offer. Do they specialize in residential construction like renovations, custom home builds, or home remodeling, or commercial construction like office buildings, mixed-use retail complexes, or healthcare hubs? Or maybe they only work with clients in a specific industry like education or manufacturing.
You should also investigate why the seller is exiting. There are many reasons a business owner might put their business up for sale, like retirement or a change in interests. In some cases, the reason could be concerning, so we suggest having this discussion early on. Have a serious but friendly conversation with them about why they are selling. Don’t be afraid to ask the current owner about any challenges they’ve faced and how they successfully resolved those issues.
Some things to look out for include:
- A poorly thought out business plan,
- Inadequate management,
- Advanced competitors,
- Business debt,
- Reputation issues, and
- Faulty equipment.
Learn as much as possible about your desired business’ successes, failures, challenges, and future opportunities. Extend your research by speaking with existing clients, employees, locals, and other companies in the area. They’ll give you an outside perspective of how the business is performing without seller bias.
2. ACQUIRE AN INDEPENDENT VALUATION
If the contractor business you’re interested in buying is on a brokerage website, you may not need to acquire a third-party valuation. When a brokerage sells a business, they conduct thorough research to determine the market value and a fair listing price.
A business valuation is a must when buying a business sold directly by the owner. A professional, third-party valuation can range from $3,000 to $5,000, which sounds steep, but they will save you money in the long run.
3. SUBMIT A LETTER OF INTENT
Once you better understand the terms and assets included in the purchase, you’ll send the seller a letter of intent (LOI). An LOI is a non-binding agreement that confirms both you and the seller commit to moving forward with the process. When both parties have signed the LOI, you can look into the business in-depth.
4. CONDUCT DUE DILIGENCE
Due diligence is the process of gathering as much information as possible before buying a business. Because there are many business documents and statements that you’ll want to collect and analyze during this step, an expert business broker, trusted accountant, and business attorney are especially beneficial.
Must-have documents when doing due diligence may include:
- Cash flow statements,
- Balance sheets,
- Debt disclosures,
- Sales records,
- Accounts payable,
- Legal documents,
- Tax information,
- Licenses and certifications,
- Ongoing contracts and leases,
- Current clients and leads, and
- Growth plans.
Note that you will want to make sure financial documents have passed an audit by a certified accountant. You should also request additional information about the construction service company’s tangible assets, like equipment and warehouse or office space, intangible assets, like goodwill and reputation, and intellectual property, like patents, copyrights, and marketing materials.
5. MAKE AN OFFER
When you sufficiently understand the construction business’ operations, processes, and financials, you can make an initial offer. Use your due diligence, business valuation, and listing price to determine a fair purchase price for both you and the business seller. The current owner may accept your first offer, or negotiation may occur. You will benefit from being prepared for both situations.
6. OBTAIN CAPITAL
It would be best if you researched financing options as soon as possible to find the best option for you. Small business loans, angel investors, crowdfunding, and borrowing from friends and family are the most common forms of business funding. Remember to keep your budget in mind as you research!
Using these guidelines as you gear up to purchase a Mecklenburg County-based construction company can help you achieve a smooth and successful exit. Decades of experience and access to a vast network of business sellers and buyers means that our brokers can get you the business you want for the best price. If you’re looking to purchase a construction company for sale near the Raleigh, Wilmington, or Charlotte Metro area, VR Business Brokers Charlotte is here to help.