Exit Ahead: Proper Exit Planning Adds Value for Construction Owners – Whether or Not A Sale is in Sight

All construction business owners seek to realize maximum value for their company upon exit. Yet far too many face surprises when they decide to sell.

A few of the common culprits of unrealized value include:

• A disconnect between perceived value and market value;
• Unfavorable market conditions at the time of the sale;
• Limited knowledge of the exit options available or the pursuit of the wrong kind of exit; and
• The dreaded five D’s (death, disability, divorce, disagreement and distress) that can force premature exits or disrupt existing strategies.

The good news is that owners can avoid foregoing value given adequate time and proper planning. Business owners that commit to succession planning as a core aspect of their overall strategy, actively build value, and grow the business with exit opportunities in mind will be most prepared to maximize value. That’s true at any stage of a business’ lifecycle, whether an exit is a distant possibility or imminent.

Every owner’s ultimate goal is to generate value while running a business and exit on their preferred terms—whether through a traditional sale, ESOP, or succession. Sound strategies and practical techniques are necessary to make ideal outcomes possible. Still, not everything is within your control. The timing must be right and that means assessing whether or not the market is able to support an agreeable valuation at the time of sale.

What are the common themes among the successful? A willingness to prepare the business for an exit, however remote the possibility, as well as investing effort into protecting and maximizing value, and remaining agile to respond to unexpected opportunities.

The real-world example that follows illustrates the importance of thorough planning, detailing one company’s failures and remediation efforts and highlighting the importance of a comprehensive strategy to support, or avoid disrupting, a transaction in process.

Real World Case: Anatomy of an Acquisition’s Failure

During a prospective acquisition, a construction company’s records failed to meet due diligence standards. The internal team attempted to implement a new construction software solution directly with a vendor but lacked the expertise necessary to manage the process properly. Critically, no one in the company had a deep understanding of construction software implementation or internal process, and the team did not reach out to external advisors for guidance. Additionally, the company did not have procedures in place for a true month-end closing process.

As a result, several disruptive issues occurred:

• Incorrect System Balances: Beginning balances in the new system were not entered accurately, leading to unreliable financials.
• Improper Setup: Payroll, burden accruals, and job costing features were not configured correctly, distorting project profitability and expense tracking.
• Multiple Conversions: The company had recently undertaken a software conversion less than two years prior, which had not been properly completed. This compounded errors in the accounting records, resulting in two poorly executed conversions back-to-back.
• No Monthly Closes: Internal financials were never closed out and reconciled, and the accounting team didn’t prepare monthly work-in-progress reports.

These issues highlight the risks associated with inadequate system conversions and the absence of monthly closes. Without knowledgeable oversight and structured procedures data integrity suffers and records fail to reliably reflect the company’s actual financial position.

Why a True Month-End Close is Critical

A true month-end close process is essential for ensuring that accounting records accurately represent the facts of a company. A comprehensive process involves reconciling accounts, reviewing entries, validating balances, and confirming all transactions have been recorded properly for the period.

This discipline:

• Detects errors early, before they compound or mislead stakeholders.
• Ensures consistency and reliability across reporting periods.
• Supports decision-making, planning, and compliance.
• Provides a foundation for external reviews, audits, and due diligence.
• Builds trust with buyers, investors, lenders, and sureties by showing the company’s financials are complete and truthful.

Without a robust month-end close, financial records become fragmented, inaccurate, and unreliable—making successful acquisitions, audits, and growth difficult or impossible.

Expensive Lessons and the Importance of Strong Internal Accounting

Due to issues with incorrect system setups, the absence of proper month-end closes, and work-in-progress schedules maintained in Excel that did not align with the information in the accounting system, CBIZ had to undertake a thorough review in order to correct three years of records.

This process began with adjusting the opening balances and properly configuring the system, an initiative aided by an outside vendor consultant. The CBIZ team then performed month-end closes with supporting documentation for each of those three years, and trained staff in the correct procedures to help ensure ongoing accuracy.

This proved to be an expensive lesson for the contractors, as significant time and resources were spent resolving these issues. Owners must recognize that having a strong internal accounting process is just as important as maintaining an effective field team. Reliable financial management and accurate reporting are critical to the overall health and success of the business, and their absence can derail exit opportunities.