Construction & Contractors/Buying the company
I have been working with this small company for 13+ year as the Project Manager. It is a three generation and the owner is wanting out, he has been prepping me to buy. I am scared I am 40 years old and have 2 kids getting ready for collage.
the company grossed 4.8 million last year, not sure of profit. We have 10 employees.We do commercial/agriculture projects = steel buildings, tilt ups,gutters, maintanance, and concrete slabs. I now how to run all the construction part no problem. Do I find another job or buy him out. If I buy him out were do I start and how do I do it so that if something goes wrong it dosnt hurt my family
what do I do how do I do it?
You need to understand the financial situation of the company. The financial statements for the last 5 years would be a good start. When you get those you can understand how much retained capital is in the company, how much debt and what the profit picture looked like. You also need to understand if there is any liabilities (lawsuits or claims)
In order for most gc's to get bonding insurance and banking credit a certain amount of capital needs to be left in the company. You need to determine what that capital requirement is and whether he is willing to leave that much in the company to be paid back over time.
Once you understand the financial situation and the risk and profit picture you can move forward on determining the fair value of the firm. In our firm we valued the stock at book value (Assets minus liabilities/ the value of the outstanding stock= price per share). Other ways to value stock include earnings multiples (average earnings last five years times three to five) or net worth multiple (net worth times). Be careful that the assets are valued properly in the financial statements. An evaluation firm could help you here.
Once you have the value agreed upon then the terms and agreements need to be worked out. It is not uncommon to pay for the company over time with future profits. Shared decision-making during that period will need to be worked out as well as fair interest and payment terms with the ability to defer payments if the performance of the company will not support the payments. Our company had a 20 year plan to migrate equity from older stockholders to younger stockholders so each younger acquiring stockholder was paid a bonus that was reinvested into the company. What I am saying here I guess is that it would have been good to start the conversation well prior to retirement so that the acquiring stockholder was not risking everything to sign up. If you do go ahead keep in mind that in 15-20 years you will need to find a way to retire as well. There are many options as to how to structure the deal.
I would look at your market and your potential market and determine what the upside for the company could be if the company was running on all cylinders. This should definitely factor into your decision-making.
When I became a partner our company was doing four or five times what you are doing with uneven profitability. With over twenty years of hard work by everyone, lots of planning and great execution we made everyone that worked there for any time a lot of money and created a great workplace. This is a high risk low margin business but was the ride of a lifetime for me. I retired at 55 and have been happy with that decision but miss the challenge and the people that I worked with and for.
I am sure that I have not covered everything, but most of it. There are outfits like FMI that will help with transition if you need support. You can also use local accountants and lawyers to help you determine fair value and contract terms. Good luck with your decision and don't hesitate to contact me if you need addition help or if you have additional questions.