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March 18, 2021

Construction Succession Planning and Business Exits

Being prepared for the unexpected is part of success on the job site. And yet most business owners haven’t thought about what it takes to eventually sell or pass down their own business. According to Dan Murray, the Coach at Your Restoration Coach, that’s a big mistake.

In this episode of the Mobile Workforce Podcast, Dan shares the serious repercussions that stem from not planning a business exit in advance. He dives into the financial implications, including how most construction business owners have a big portion of their retirement savings locked into their business. He also discusses timing and explains why planning should begin years in advance. Finally, Dan breaks down action listeners can take now, including actionable steps that make a business valuable to potential purchasers.

Key Takeaways:

  1. Take time to determine a business’s worth. A common saying is sellers should get five times EBITDA, which gives a baseline of predictable future profits. But what a business is worth is based on its consistency with the price decreasing if it has a lot of variances from one year to the next or big swings back and forth. The more predictable and solid a business’ financial performance is; the more confident a buyer will be – and more willing to pay more.
  2. A sale doesn’t have to interfere with daily business. An owner’s goal should be to work themself out of a job. That’s because prospective buyers are wary of taking on companies that depend on one person to run everything – or risk things falling apart. The most successful businesses are the ones that run fairly autonomously from the owner in day-to-day business matters, which increases the likelihood of a smooth transition when a sale is made.
  3. Selling a business comes at a cost. When business owners focus on the final dollar amount of the sale, they’re not seeing the full picture. There are a number of costs involved, including fees to brokers, lawyers, and accountants. On top of that, it’s important to consider how much will be taxed on their earnings. As a general rule, a third of what the business sells for is what the owner keeps in their pocket.