Selling Your Trade Business

What a buyer is actually buying

There are two things on the table in any trade business sale, and they're valued completely differently.

• The assets — vehicles, tools, plant, stock, sometimes premises. These have a market value anyone can look up, and there's not much argument about them.
• The earnings that continue without you — the part everyone calls goodwill. This is where the money is, and it's the part that evaporates if the business is really just you with a company name.

That second point is the whole game. If every quote, every relationship and every bit of pricing knowledge lives in your head, then what you're selling is a job with some tools attached, and it'll be priced that way. The uncomfortable version: the less the business needs you, the more it's worth.

The work starts about two years out

Buyers want to see a settled, growing business, not a snapshot. That means giving yourself enough runway to show a genuine trend and to fix the things that would otherwise be discounted.

1. Get yourself out of the daily work. Hand over quoting, scheduling and site supervision as far as your size allows. This is the single biggest lever on the price, and it's also the slowest — which is why it goes first.
2. Write down how the business runs. Pricing, standard job methods, supplier arrangements, warranty handling, who does what. A buyer stepping into your shoes is buying a system, and a system that's written down is worth more than one that's explained over a beer.
3. Build recurring work. Maintenance agreements and service contracts are the most attractive revenue in a trade business because they arrive whether or not anyone is selling. See what a maintenance agreement is.
4. Reduce client concentration. If one builder is 60% of your turnover, a buyer sees one phone call away from disaster. Spreading that out takes time and materially changes what you're offered.
5. Tidy the customer database. Names, addresses, contact details, equipment installed, service history. A list a buyer can actually market to is an asset; a shoebox of job cards is not.
6. Clean up the loose ends. Disputes, unfinished warranty work, expired licences, lapsed insurance, unregistered business names, agreements that were never written down. Every one of these becomes a price reduction during due diligence.

The records you'll be asked for

Due diligence is where sales fall over, and almost always because the seller can't evidence what they claimed. Assume a buyer will want several years of history and that anything you can't produce gets treated as if it doesn't exist.

• Financial statements and returns for the last few years, prepared by your accountant.
• Revenue broken down by job type, by client and by month — enough to show what the business does and how seasonal it is.
• Job history: how many jobs, average value, what they quoted at and what they actually cost.
• Debtors and creditors as they stand, including anything overdue and what you're doing about it.
• An asset schedule — every vehicle, tool and piece of plant, with what's owned outright and what's under finance.
• Contracts and agreements — maintenance clients, leases, supplier terms, employment agreements, anything with an ongoing obligation.
• Licences and insurances, current and evidenced, with their renewal dates.
• Warranty and defect history, including anything still open.

A business that produces all of that in a week gets a smoother sale and usually a better price, because the buyer's risk is lower. One that takes three months to assemble it invites a discount for uncertainty. Tracking business expenses and costing every job as it closes are what make this a printing exercise rather than an archaeology project.

What it's worth, and who decides

This is where you should be sceptical of anything you read, including online calculators. Trade business valuations vary enormously with trade, location, size, work mix and how much the business depends on its owner — and anyone quoting you a rule of thumb without seeing your numbers is guessing.

What you can usefully understand is what goes into the number, so the conversation with a valuer isn't a mystery:

• Normalised earnings. Your accountant adjusts reported profit to show what the business earns for a new owner — adding back your own drawings and anything personal running through the business, and correcting things like below-market rent on premises you own.
• The quality of those earnings. Recurring and contracted revenue is worth more than the same dollars won job by job.
• Owner dependence, discounted directly. The more the business needs you specifically, the lower the number.
• Tangible assets, valued separately, with finance owing on them netted off.
• Risk factors — client concentration, key staff, licence transferability, disputes, lease security.

Get an independent appraisal before you go to market. An accountant who works with trade businesses, a registered business valuer or an experienced broker will each look at it differently, and the cost of that advice is trivial next to the price difference between a well-prepared sale and a rushed one. Your accountant should also be involved early on structure — whether you're selling the business or the entity changes the outcome, and it's their call, not something to work out from a guide.

Who buys, and how the handover works

Trade businesses generally sell to one of three types of buyer, and the type shapes the whole process:

1. Protect the information. A confidentiality agreement before you hand over financials, and staged disclosure — headline figures first, the detail once someone is serious.
2. Decide who knows, and when. Staff and key clients finding out through the grapevine is how good people leave mid-sale. Plan the announcement rather than reacting to a leak.
3. Expect a transition period. Most buyers want you around for a stretch to hand over relationships and know-how. Agree the length and what you're actually committing to, in writing.
4. Understand any earn-out or deferred payment. Part of the price tied to future performance is common and reasonable, and it means you're carrying risk after you've stopped controlling the business. Get advice on how it's measured.
5. Read the restraint clause carefully. Buyers will want you not to compete for a period and in an area. Fair enough — but know exactly what you've agreed to before you sign, especially if you plan to keep working in the trade.
6. Plan the customer handover. A joint introduction to your main clients is worth more to the buyer than any document, and it's usually what protects the goodwill you've been paid for.

Frequently asked questions