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Buying a way out of recession

Investing in a construction firm can be lucrative but complicated. By Jason Heath

Most successful businesses will attract interest at some point from investors or competitors.

Buying a construction business is a lucrative option for entrepreneurs – they get an established name, a customer database and an immediate revenue stream. But for both buyer and seller the process can be costly and complex, especially in the current business landscape.

There are countless reasons why a construction business might be put up for sale – from an offer that simply can’t be refused, to retirement. And there are different ways to sell all or part of a business, such as disposing of the whole company as a going concern, or retaining partial ownership and continuing to run the business on a day-to-day basis.

Many businesses are sold in a trade sale to another business; others are sold to private-equity buyers, while some companies are bought by their existing management team or an outside management team (management buy-in).

Whatever the method used, there are advantages and disadvantages. A buy-out team has in-depth knowledge of the business, a firm grasp of its value and is best placed to act quickly.

A trade buyer can benefit from economies of scale such as purchasing power to get better deals from suppliers or spreading administrative overheads over a bigger operation.

Having experienced advisers on board is essential for an effective sale and the right adviser can have a huge impact on its success – or otherwise.

A combination of specialists will provide optimum support – an accountant will concentrate on all of the financial aspects of the sale while a solicitor will focus on the legal requirements.

For owners and managers, preparation is also key to a successful sale and good forward planning will help maximise value. Preparing for the sale as far in advance as possible will help you to get everything in order and identify any necessary final preparations before handing the reins over.

Smooth transition

Making sure that your finances are in good shape before selling or buying a new business is essential to helping things run smoothly.

This can be achieved by exercising tight credit management and effective stock control practices, making realistic provisions for bad debts and accounting for any irregularities.

You should also ensure other key elements of the business are in order to show it in the best possible light. Good sales forecasts will help to increase prospective buyers’ confidence but must be realistic and supported by evidence.

Reducing longer-term investments such as avoiding heavy advertising spend or taking on new staff is a great way to boost short-term profits before a sale.

However, avoid excessive costcutting or the business may suffer – as well as the price potential buyers are prepared to offer.

When selling your business you should also consider how much time you are prepared to give to the new owner. Are you prepared to continue working for the business after the sale?

Deciding how much or how little time can be committed is vital and should be made clear to potential buyers at the outset.

Getting ready for sale is often the culmination of many years of hard work and perseverance – being too hasty or getting it wrong can waste years of concerted effort. Be prepared to negotiate and trust business instincts.

If a deal does not feel right, keep looking.

Jason Heath is a construction finance specialist at Bibby Financial Services