I helped a company acquire a 20-year-old construction hardware business a few years ago. The seller expected a decent multiple on their annual profit. They had solid revenue and two decades of satisfied clients.
We bought it for asset value only.
The owner was the entire sales engine. His wife ran the office. Everyone else was billable. When we looked at the pipeline, we found nothing. No CRM. No documented sales or marketing processes. There was no way to know if revenue would continue after he left. (And it didn’t.)
The company wasn’t transferable, so it had no value beyond the equipment.
The Math That Destroys Exit Value
Construction companies typically sell for 1-4.5x annual profit. Most fall between 2-3x. But here’s what buyers actually see during due diligence.
A $25M contractor with 15% margins generates roughly $3.75M in annual profit. If you’ve built systems that operate without you, buyers will pay 3-7x that profit. With an earnout, you’re looking at $11M to $26M.
If you’re the rainmaker and the business depends on your relationships, buyers see massive transfer risk. The entire sales pipeline (and crews) can vanish when you walk out the door. Your decades of client relationships don’t transfer. Your referral network stays with you.
So they offer asset value. Maybe you own some trucks and equipment. That’s it.
The difference between these scenarios isn’t the quality of your work or the strength of your client relationships. It’s whether those relationships belong to the company or to you personally.
What Buyers Actually Verify During Due Diligence
I’ve been on both sides of construction company acquisitions. Buyers have a checklist of red flags that can immediately tank valuations.
No CRM system. This tells buyers your pipeline exists in someone’s head and golf calendar. When that person leaves, the pipeline disappears.
Owner handles all sales conversations. If clients only know one person, the business isn’t transferable. Buyers want to see multiple people managing client relationships.
Revenue concentrated in 1-3 major clients. This creates a massive risk. Buyers want diversified revenue across multiple clients and sectors. If a recession hits or one client leaves, the business needs to survive.
No documented nurturing process. Golf trips and lunches work, but only if they’re planned strategically with your best clients and referral partners. Texting a buddy about golf tomorrow is a lifestyle business. Buyers don’t want lifestyle businesses unless you’re selling to your child.
Everyone is billable, including the owner. This means you’re running too lean. One key employee getting sick or quitting destroys the business. Savvy investors prefer 10% margins with stability over 25% margins resting on a razor’s edge.
The Counterintuitive Reality About Margins
Most owners make a critical mistake when preparing to sell. They try to maximize profit margins by keeping the team lean. They think healthy margins will impress buyers.
This backfires.
When we evaluated that construction hardware company, we had internal discussions about the worth of different systems in multiple terms. A sales pipeline and real marketing would have gotten them to 3x. Better margins with stability would have pushed it to 5x. If they had recurring revenue and a documented sales system, we would have paid 7x.
Instead, they got asset value.
Buyers want to see that you’ve invested in the infrastructure that makes revenue predictable. A salesperson with a mix of inbound leads and outbound opportunities. Defined roles. Planned client nurturing. Multiple people in the company that clients contact about work.
These investments temporarily reduce margins. But they multiply the exit value tremendously.
The Timeline Problem
You need 2-5 years to build transferable systems. Ideally, five years, but you can do it in two or three if you’re focused.
This creates a psychological challenge. You’ve been successful as a rainmaker for decades. Your name is probably on the door. You’re working with friends you’ve known for years. Now someone is telling you to step back from sales and reinvest in the company.
It requires an ego check and potentially a temporary pay cut.
The owners who successfully make this transition take specific actions in the first 12 months. They bring in accountability. A business coach, a fractional CFO focused on exit strategies, or an advisor who holds them to the plan. They’ve been successful one way for decades. Changing that pattern without external accountability rarely works.
One contractor I worked with tested himself systematically. He took off 10 days in a row the first year. Then 15 days. Then 20. Then 25. Finally, an entire month. He went places where they couldn’t contact him. Hunting trips in remote areas, Europe with his wife, extended cruises, retreats to mountain lodges, etc.
When the company operated normally during that month, he knew he’d built something transferable.
What Actually Happens When You Build Systems
Here’s the part that surprises most owners. Many of them mentally prepare to take a pay cut while building systems. But they actually make more money in the years before they retire.
Why? Because they were the bottleneck.
One contractor I worked with nearly tripled his company in his last five years while building out systems and processes. Getting out of the way allowed the company to grow faster than his personal capacity ever could.
The business became more valuable and more profitable simultaneously.
The Choice You’re Actually Making
There’s nothing wrong with the rainmaker business model. You can have a good life, make good money, take care of your family, and do good work. Many contractors build successful careers this way.
Just know that’s a choice.
Don’t expect a big payday at exit. Don’t make selling your company your retirement plan. I’ve seen that bankrupt owners at the end. They spent decades building what they thought was a valuable asset, only to discover it had no value without them.
The market is clear about what it values. Systems-dependent businesses command premium multiples. Owner-dependent businesses get asset value.
If you’re 5-10 years from exit, you have time to build transferable systems. Start by identifying where you’re the lynchpin and work on removing yourself from that day-to-day role. Continue that process systematically.
You don’t have to hire for every role. Strategic vendors can actually be an asset because buyers know they won’t leave when you do.
But you do need to make a decision. Build a business that operates without you, or accept that your exit value is limited to your physical assets.
The construction M&A market is strong right now. Federal funding for infrastructure, energy, and manufacturing projects is keeping backlogs elevated. Interest rate cuts in 2024 pushed construction spending up 6.6% year-over-year. The window for strategic exits is open.
The question is whether your business is positioned to capture that opportunity or whether you’re building a lifestyle that ends when you do.