Builders and trades
A building company
is read job by job.
A buyer of a builder, a remodeler or a trade contractor reads the financial statements, then goes straight to the jobs behind them: what is signed, what has been paid for and not yet built, whose name is on the license, and who wins the work. Those answers set most of the price.
What a buyer checks first
Six things a buyer reads before the price
Buyers in this industry run the same checklist, in roughly the same order. Four of the six are answered in your records rather than in how you run your jobs, which means they can be put right before anyone asks.
01
The backlog, counted the way a buyer counts it
Not the pipeline. Signed contracts with deposits, the margin each one was bid at, and when each will be built. For a service contractor, the same question is asked of the maintenance agreement base: how many are current, renew without anybody asking, and are paid automatically. Verbal commitments say something good about the market and carry little weight in the price.
02
The money you have already collected
Deposits, progress payments billed ahead of the work, and prepaid service plans are cash you hold for work you still owe. A buyer's accountant calculates that balance at closing and treats it as an obligation the buyer is taking on, usually inside the working capital settlement or as a reduction in price. The record a buyer asks for first is a work in progress schedule that shows it job by job.
03
The license, and whose name is on it
In Virginia a contractor license belongs to the firm, not to a person, and it does not transfer. It rests on a qualified individual named by the firm, and in most companies that person is the owner. It is the one item on this list that can stop a sale rather than reprice it. More on that below.
04
Who wins the work and who runs it
A buyer is buying estimators, project managers, superintendents and crews, and cannot hire them any faster than you can. It reads tenure, who holds the certifications, and whether pay is at market. Then it asks whether the best estimator, and the person your customers call, is still you. If jobs are won at a higher rate when you bid them, the numbers show it, and the price follows the rate the rest of the team achieves.
05
Concentration and mix
Service and repair work repeats. Remodel and replacement work is won one job at a time. New construction follows the builders' cycle, is paid on terms somebody else sets, and often carries retainage. A buyer values the three differently, and looks hard at any single builder, general contractor or source of lots that the next two years depend on. The top line can rise while the price falls, if the growth came from the wrong kind of work.
06
Job costing a buyer can read
Under every other question sits this one: can profit be shown job by job? A buyer compares what each job was bid at with what it actually made, looks at how often margins slip between the bid and the closeout, and asks what warranty work and callbacks cost after the job is done. A company that can produce that record in an afternoon is read as one that keeps making money without its owner checking every job.
What the six add up to
Four of the six are records
They ask the company to be readable, not to be run differently
The real backlog. The deposits and billings ahead of the work. The license and who holds it. Profit job by job. None of these asks you to build differently. They ask the company to be readable by somebody who will verify everything and assume nothing.
The other two, the people and the mix, are real work and take years, which is why they have to start before anyone asks. All six are versions of one question: whether what is good about the company survives your departure.
The license question
The one item that can stop a sale
In Virginia the firm must name a qualified individual for each classification on its license: a full time employee or one of the principals, with at least five years of experience in the classification for a Class A license and three for Class B. For electrical, plumbing and HVAC work, that person must also hold a master tradesman card. The contractor license belongs to the company. The master tradesman card belongs to the person, and leaves with them.
If the buyer buys the company
The license stays with the firm. If the qualified individual is you and you leave after closing, the company has sixty days to report a qualified replacement. If nobody inside meets the requirement, the clock simply runs out.
If the buyer buys the assets
The license does not move at all. A new company holds no license on the first day and cannot lawfully do the work until it has one, which a buyer will want solved before closing rather than after.
The fix is simple, and slow
Name the person who will hold the role. Confirm their experience is met and documented, and that they hold the master card if the trade requires one. Then give them long enough in the role that it is a real arrangement rather than a document prepared for a buyer.
Maryland is stricter. There the electrical, plumbing and HVACR licenses belong only to the person, the company works through a master it designates, and there is no sixty day grace period: when the master leaves, the company stops doing that work until another master is named. The District has its own rules. The question a buyer asks is the same everywhere: if the license rests on you, does it still work the week after you leave?
At the table
Where building and trades deals lose money after the price is agreed
01
Jobs half built at closing
Every job in progress on the closing date raises the same questions: who finishes it, at whose cost, and who keeps the profit on it. A buyer will only accept your costs to complete if your work in progress schedule has been reliable in the past.
02
Retainage and slow receivables
Retainage held until a job closes out, and builders who pay on their own schedule, keep receivables high by design. A buyer who sets the working capital target without allowing for that will ask you to leave more cash in the business than it needs.
03
Warranty and callbacks
Obligations on work already delivered stay with the company after the sale. Without a record of what warranty work has actually cost, a buyer will assume the worst and hold back part of the price to cover it.
04
Bonds and personal guarantees
Bonding lines and credit lines written on your personal indemnity leave when you do. A buyer has to replace them, which changes who can close and how quickly.
05
Trucks, equipment and the yard
Vehicles titled personally, equipment held in a related company, and a shop or yard you own and rent to the business are all restated to market before a price is set. Rent set years ago below market lowers the earnings a buyer sees, and the difference comes out of the price.
06
How the crews are paid
Crews paid as subcontractors who work like employees are a question a buyer's counsel will ask early. Whatever exposure the answer creates becomes a holdback or a reduction in price.
The work
The same Review, dated against your license and your jobs
The Defensible Date Review works the same way for a builder or trade contractor as for any other company. The difference is that several of its dates are set by things you can see coming: how long a successor needs to qualify for the license, when the jobs in your backlog close out, and how many years of clean job costing a buyer will want to read.
For a builder or trade contractor, the Review and the full assessment that follows also cover:
- Your backlog, counted the way a buyer counts it. Signed, deposited, and bid at a margin you can show.
- What you owe in work already paid for. Deposits, billings ahead of the work and prepaid plans, at the number a buyer will use.
- The license and who holds it. Who can succeed you as qualified individual, and how long that takes.
- Job costing a buyer can read. Bid against actual, job by job, for the years a buyer will ask about.
Your CPA, your attorney and, where you are bonded, your surety each have a part in this. I work alongside them, so the accounting, legal and value questions are answered together rather than one at a time.
Start with a conversation
Bring your work in progress schedule if you keep one, and what you are thinking about. If a sale is years away, that is the right time to be having this conversation, because the license and the people take years to settle.