Starfish Coaching · Selling Your Business
A decision guide for design and construction owners, anywhere
A sale to a partner, a manager or a key employee and a sale to a stranger are priced on different logic. The first is paid out of what the business earns after you leave. The second is set by a buyer comparing you with every other business they could buy. This page helps you decide which suits you, and what has to be true for either to work.
Sell to a partner, a manager or a key employee when you want continuity, a buyer you know and a deal that the business can fund itself. Sell on the open market when you want the widest field of buyers and the best chance of a price set by competition. Either way, the price rests on the same thing, which is how well the business runs without you.
A key-employee buyout and an open-market sale are priced on completely different logic. The person buying from you may have to pay for the business out of its own profits, over time, while a stranger pays with money they have raised and compares you against the other businesses they could buy. Neither is better in general. What matters is which one gets you the net figure you need, with a risk you can live with.
A partner or manager can pay what a stranger would only if the business is strong enough to fund it.
Answer these in order, in writing, before you speak to a buyer or an adviser. The first two have a number of your own to find.
Start from your net figure and your date and not from the buyer. What is my construction company worth shows how to work out the net you need. A sale to a partner is often paid out over a longer period, so the date matters.
Your number: the net you need and the month you need it by.
For a partner or an employee, the money comes from the business itself, so measure what is available. Take yearly earnings after paying a full wage for the job you do, then subtract the yearly repayments on any bank debt the buyer would carry. That is what is left to pay you.
Your number: the price you want, divided by that yearly amount. It is the number of years the business would take to pay you, and it shows quickly whether the plan is realistic.
Staff, the name on the door, long-standing clients, speed, privacy and what you want to do afterward. A buyer who offers less but keeps your people may suit you better, and a stranger may pay more but change everything.
Your answer: your top three, in order.
The table shows how the two routes usually differ. Terms vary by country and by deal, so treat it as a map of the questions to ask and not as a rule.
| Partner, manager or key employee | The open market | |
|---|---|---|
| Who pays | Mostly the business's own future profit, plus whatever the buyer can borrow or put in. | A buyer's own money or a lender's, weighed against other businesses they could buy. |
| What sets the price | What the business can fund after you leave, and what both sides agree is fair. | Competition between buyers, and how much risk each of them sees. |
| How you are paid | Often over a period, out of profits, so you stay exposed to how the business does after you leave. | Terms vary. Some is usually paid at closing and some can be held back or paid later, so read what counts as cash on the day. |
| What the buyer knows | A great deal, so there are fewer surprises, but they know your weak spots too. | Very little, so they check everything and price what they cannot verify. |
| Privacy | People inside the business may find out early. | Needs care. Ask your broker how confidentiality will be protected. |
| Your role afterward | Often a handover, and sometimes a role for a period. | Whatever the contract sets. A transition period is common, so negotiate its length and its pay. |
| What has to be ready | A price and terms both sides can afford, a written agreement, independent advice for each side and a business that can run without you. | Documents a stranger can read, clean financials, a business that runs without you and an adviser to run the process. |
| The main risk | A price below what a stranger might pay, and being paid out of a business you no longer control. | The business is found not to be ready, the process drags on, or the price drops during checking. |
This route works best when the buyer already runs the business day to day, wants to own it and can show how the payments will be made. It breaks down when the business still depends on you, because then a partner or manager is not buying a business either. They are buying a job that they cannot do without you.
The version that works is a business strong enough to pay for its own sale, out of the profits it generates and not out of debt the buyer would have to carry. Here is what to put in place.
An open-market sale puts the business in front of buyers you do not know, usually through a broker or adviser, and lets them compete. Buyers range from an individual who wants to run a business of their own to a competitor or a larger company to an investor, and each weighs different things. That is covered in what buyers look for in a construction business.
The process runs in a fairly set order. Your adviser prepares the documents and introduces the business to likely buyers under a confidentiality agreement. Offers arrive, and you negotiate terms with the one you choose. Then the buyer checks everything, and the price can move during that checking if something is found. The checking is where a business that is ready earns its price, and where one that is not loses it.
Fees are worth settling in writing before you sign anything: the percentage or amount, what it applies to, how long the agreement runs, and what happens if you sell to someone the adviser introduced after it ends.
Your number: the fee in dollars on your low, middle and high price, for the net sum in what is my construction company worth.
Some owners sell part of the business first and the rest later, or sell shares gradually to the people who will run it. Every share you sell is priced off the same thing, which is how well the business runs without you. If each stage is priced after the business has grown stronger as you stepped back, each share can be worth more than the last.
It needs a clear written agreement on how each stage will be priced and what happens if you and the buyer disagree, so involve your lawyer from the start.
The work is the same for both. The business has to be able to operate without you before it is sold, because that is what a partner and a stranger are each paying for. Where it cannot, the first job is to find where it depends on you and to change that, which is the subject of a business that runs without you. The free Exit Readiness Scorecard gives you a first read, and the Exit Readiness Assessment maps the dependence in writing and sequences the work against your date. How much time that takes is covered in when to start planning your exit.
The costliest errors in either route are collected in the mistakes that cost you when you sell.
This page is general information for owners of design and construction businesses. It is not legal, tax or financial advice. Rules differ by country and by how a sale is structured, so take advice from your own lawyer and accountant before you act.
It depends on what you need to net, how soon you need it and who can actually pay it. A partner or manager is usually paying out of the business's profits over time, so the price and the timetable are shaped by what the business can afford. A stranger pays from their own funds and compares you with other businesses, so the price is set more by competition. Work out your net figure and your date first, then test each route against them.
Test it with arithmetic. Take yearly earnings after a full wage for the job you do, subtract the yearly repayments on any bank debt the buyer would carry, and divide your asking price by what is left. That is the number of years the business would take to pay you out. A lender's view of the business will also matter, so ask a bank what it would lend against it.
Often, but not always. The buyer may have less to pay with, so the price can be lower or the payout longer. In exchange you may get a buyer who knows the business, fewer surprises in checking and a smoother handover. Compare the routes by what you net and by the risk you carry, not by the headline price.
Not necessarily. You do need an independent view of what the business is worth, and separate legal and tax advice for each side. A broker or valuator can supply the first, and some owners use one to keep the negotiation fair.
Yes, a sale can be structured in stages, with shares sold over time to the people who will run the business. Each stage should be priced under a clear written agreement, and the arrangement works best when the business is getting stronger as you step back. Take legal advice before you agree the terms.
It means part of the price is paid to you over time instead of at closing, so you are lending to the buyer. How safe it is depends on what you hold if payments stop, on the buyer's ability to pay and on how the business performs after you leave. Ask your lawyer what security you would have and what you could do if a payment is missed.
The same test applies: the business has to be able to run without you, and the successor has to be able to run it. Family transfers add questions of fairness, tax and relationships, so take legal and tax advice, and decide whether the transfer is a sale, a gift or something in between before you set any numbers.
Both routes are priced off how well the business runs without you. The Exit Readiness Assessment is $2,500, credited in full against your first monthly payment if you join the Master Plan Program within one month. It shows what is suppressing the number and what to fix first, and your broker or advisor can join the walkthrough. If you would rather talk first, talk it through with Eric.
Eric Lee · Starfish Coaching · 1937 Triumph St, Vancouver BC V5L 1K6
Contact Eric
