For those of you that have known me for a while, you might remember my participation several years ago in the Remodelers Guild. As a partner in the Guild, we were attempting to show remodeling contractors how to make their company a saleable asset. To make a long story short – we failed.
This issue of selling a successful company continues to haunt remodeling contractors as they spend 10, 15, and 20 years building an established brand and reputation, only to discover that their company isn’t worth much more that the value of the tools, office equipment, and real estate. The value of their client list is just that – it’s just a list. Not much more.
Let me explain the key issue here so that we can address this and tackle this “equity” issue. When I was working with the Remodelers Guild, a banker sat down with us and told us what his chief concern were. Simply, a remodeling contractors start over every year. Homeowners doing a major addition for project one year are not calling back the next year asking to do another project. Hence, even if you did over $1,000,000 in sales this year, you can’t convince the banker that you will do another $1,000,000 in sales the next year.
Remodeling is subject to the whims of the economy, and a market downturn or terrorist attack can have a devastating effect on consumer confidence. If there is no consumer confidence, remodeling sales go down. We just experienced this from 2008 to 2012.
Business brokers will evaluate the health and saleability of a business based on brand, reputation, and recurring revenue. They call these “value-drivers“, and a business will equity will have the following value drivers:
- A unique product or service
- Your team – the right people in the right seats
- A good client list
- Technology supporting your product and service
- Strategic partnerships
You all have the parts to complete this equity-building exercise, but you might need some internal tweaking. I would like to create a part 2, and build on this idea. Would you like to know more? Let me know.