Exit and Financial Planning for your Construction Company

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Exit and Financial Planning for your Construction Company

When you are running a business, it is natural to focus on growth ambitions but it’s also vital that you have an exit strategy in place.

We realise that many business owners may not have had time to consider an exit strategy while they’re busy managing large projects and building teams. So, we’ve written this quick blog to explain the importance of considering your options early.

Exit and Financial Planning for your Construction Company is so important, you need to have an exit strategy

Despite construction being the backbone of the UK’s growth, the industry is being squeezed due to factors outside of its control. In a recent article published by building.co.uk (https://www.building.co.uk/news/administrations-in-construction-jump-as-low-margins-hit-squeezed-firms-wriggle-room/5125926.article?utm_source=dlvr.it&utm_medium=linkedin), it was reported that 955 companies across all sectors have gone into administration within the first nine months of 2023, with 127 of those companies being in the construction sector. 

Why has 2023 seen such a jump in construction sector administrations? Kroll managing director Sarah Rayment explains that, “It is unsurprising that construction and manufacturing continue to lead the way with their traditionally low margins leaving little breathing space.” With rising costs in materials amongst other hurdles the sector is facing, we can expect to see more companies facing administration as the end of the year draws in. 

Whilst the economic landscape remains out of everyone’s control, following the steps to start building an exit strategy can ensure construction company owners are prepared for any outcome and are able to protect their business interests. 

What are the risks of not having a strategy for your construction company’s next steps?

An exit strategy is a way of safeguarding your business, making sure you are prepared for any scenario and helping you to avoid losses in the face of challenging times. By leaving this to the last minute you can run the following risks:

Your exit strategy helps you set and reach both your personal and business goals which could include retirement aims or a desire to pass on your business to future generations. 

With our ever-changing economy it is vital to have something in place for emergency measures. Economic change including the aftermath of the pandemic and rising inflation have led to an increase in businesses that are struggling to stay afloat. By having a detailed plan in place, you can be prepared for obstacles that may come your way.

An exit strategy can ensure you’re kept up to date with an accurate valuation of your company, meaning you’re not at risk of selling at a less than fair price when the time comes.

Exit and Financial Planning for your Construction Company

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What should a strategy for the future look like?

This depends on the company’s outlook and what you wish to achieve.

Are you looking to expand? Do you want to ensure the business stays within the family for generations? Or do you want to ensure your business can sell for a profit before you retire? 

Your strategy could include the following:

In particularly temperamental industries like construction, it can be argued that an exit plan is just as important as your growth plans. Your options for an exit plan could include:

  • Management buyout
  • Merger and acquisition
  • Employee buyout 
  • Family succession

This is a non-exhaustive list, there may be more options for you which is why it’s important your exit strategy is prepared in advance. 

In an ideal world, you will sell your business once you are ready and after achieving everything you have set out to do. However, due to circumstances out of your control the time to sell may arise sooner than anticipated but you’ll still want to ensure you get an optimum value for your business. 

Hilton Smythe offers a free business valuation service, with just a few easy steps online using our Business Valuation Calculator you can receive an instant business valuation in minutes. Alternatively, if you would prefer a more in-depth discussion, you can book a fifteen-minute consultation to discuss your options. 

Your finances play a crucial role in your exit strategy. Your financial health will determine your growth as well as the timing of when to implement certain parts of your exit strategy. For example, a big increase to turnover may see you making an investment or selling for a profit.

By ensuring your accounts are in order and up to date you can have an accurate view of your company’s financial health and see where any improvements could be made to increase revenue or bring costs down, forecasting the future of your business. Or, you may want to consider a business loan to help you grow, prior to any plans for exit.

For any guidance or support you may need Hilton Smythe offers a wide range of financial services. Whether it’s a loan to protect your business or for a new project or asset finance to help spread the cost of new equipment and machinery, we can help you consider your next financial steps.

What’s the right strategy for your construction company?

The right strategy for your company depends on the circumstances both within the business itself and the economic landscape. As of November 2023, it’s a volatile time for the construction industry and it’s important to remain vigilant so you can be prepared for any outcome. Considering the current market and where your business lies within the sector, your company’s performance and your own expectations is also useful in making a suitable decision. 

It’s personal to you and what is right for another construction company may not be right for you. 

Organising an exit strategy and planning your finances is a daunting prospect for anyone, it can be complex, overwhelming and you could most likely do with a helping hand. Here at Hilton Smythe, we have a knowledgeable team with years of experience that can advise you on your next steps. 

Our consultants are just a phone call away and are here to discuss your options. This can range from valuing your business to your goals to recommending the best options available to you no matter the circumstances. 

Learn more about Exit Strategies

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