Whether you're selling to a strategic buyer, a private equity platform, or an individual operator, the financial due diligence request list looks roughly the same. Here's what gets asked for -- and what happens when you can't produce it.
| Document | What Buyers Use It For | If You Can't Produce It |
|---|---|---|
| 2-3 years compiled/reviewed financial statements | Verify revenue, gross margin, and EBITDA trend | Discount or pass |
| WIP schedule for each year | Verify revenue recognition accuracy and overbilling exposure | Major red flag -- discount heavily |
| Adjusted EBITDA reconciliation | Normalize owner-specific items to derive true business earnings | Buyer calculates their own -- usually lower |
| Job-level profitability history | Verify gross margin isn't concentrated in a few outlier jobs | Gross margin credibility questioned |
| Backlog with signed contracts | Assess forward revenue and transition risk | Revenue gap creates transition risk discount |
| Customer concentration analysis | Identify dependency on any single GC relationship | Single customer >30% triggers significant discount |
| AR aging at time of sale | Assess collectability of outstanding receivables | Older AR discounted or excluded from transaction |
Exit preparation isn't a 90-day sprint. It's a 3-year build. The systems that drive valuation take time to produce the track record buyers need to verify.
Get ControlQore in place. Set up job costing aligned to your estimate structure. Build the WIP report and produce it monthly. Separate owner salary from owner distributions. Remove personal expenses from the P&L. Start tracking adjusted EBITDA. This is the foundation everything else sits on.
Year 2 is the first full year of clean financials with job costing and WIP. Keep margins consistent. Grow revenue without growing overhead proportionally. Diversify the GC customer base -- no single GC above 30% of revenue. Add a project management layer so the owner isn't the only person managing jobs. Document your estimating process so it's trainable.
Year 3 is when the picture becomes sellable. Two full years of clean financials. Two WIP schedules. Adjusted EBITDA that a buyer can verify from the documents. A management team that can run 90 days without the owner. Engage a CPA familiar with construction M&A to review your statements before you go to market. Talk to a broker or banker 12 months before you want to close.
Adjusted EBITDA is the starting point for every construction company valuation. It begins with net income and adds back non-cash charges and owner-specific items that won't continue under new ownership.
A construction company with $300K reported net income might have $520K in adjusted EBITDA after add-backs. At 3.5x, that's $1.82M vs. $1.05M -- a $770K difference from the same business. Every add-back is only credible if it's supportable from the books. That requires clean financials.
Start 2-3 years before you want to sell. Get job costing in place, build a WIP history, clean up owner compensation, remove personal expenses from the business, and build a management layer that can operate without you. Buyers pay for certainty -- every financial system you have in place reduces their uncertainty and increases what they'll pay.
At minimum: 2-3 years of compiled or reviewed financial statements, a WIP schedule for each of those years, a working capital calculation, an adjusted EBITDA reconciliation, and a backlog summary with signed contracts. Private equity and strategic buyers will want job-level profitability history and bonding capacity documentation as well.
Adjusted EBITDA starts with net income and adds back interest, taxes, depreciation, and amortization -- then makes further adjustments for owner-specific items: salary above market rate, personal vehicle expense, personal insurance, non-recurring legal costs, and other items that won't continue under new ownership. Adjusted EBITDA is what buyers use to value the business.
Two to three years minimum. Buyers want to see 2+ years of WIP history, cleaned-up financials, and consistent EBITDA. A company that started job costing 6 months before listing doesn't have the history buyers need to verify the numbers. Starting 3 years out gives you time to build the track record that commands a premium multiple.
SPM builds the financial systems that drive valuation -- job costing, WIP reporting, EBITDA tracking, and clean overhead allocation. Clients who have been with SPM for 2+ years have the WIP history, adjusted EBITDA record, and financial documentation that buyers require. We don't manage the transaction itself, but we make sure the financials support the price you want to get.
One call. We'll show you what 3 years of exit preparation looks like -- and what you need to start now.
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