The Question Nobody Was Paid to Answer (Part 1)

 At some point somebody is going to say a number out loud.

It might happen in a conference room or on a phone call you took in your truck in a parking lot. Either way, it may be the first time in twenty or thirty years that anyone has put a price on the thing you built. You will probably remember where you were sitting when you heard it.

Almost everything that happens afterward gets measured against that number. Whether the process was worth it. Whether the buyer is being fair. Whether you got what you deserved.

Here is what usually does not get mentioned in that room.

The person saying the number may be competing to represent you. The next number may come from someone competing to buy you. The one after that may come from a team hired by the buyer to examine what they are buying. None of those people necessarily has to be wrong. None has to be dishonest. But none is neutral either.

More important, none of those numbers answers a different question that most owners have never had much reason to ask: how much of this business survives you?

That is not the same as asking whether the business performs well, whether someone will buy it, or what someone might pay for it. Performance, marketability, and transferability overlap, but they are not the same thing.

Five contractors are about to find that out. Four of them will find it out after they have already made a decision they cannot completely take back.

Five Shops, One Trade, One City

They are commercial mechanical contractors: HVAC, plumbing, piping, controls. All five operate in the same metro. All five are between eight and eighteen million dollars in revenue, and all five go to market within roughly the same three-year period. Same interest-rate environment, same labor market, many of the same general contractors bidding the same jobs.

Whatever happens to them, timing is not going to explain much of it.

Marty Vosburgh runs eleven million, almost all bid-spec. He has forty-one people and a reputation for hitting his numbers on complicated jobs nobody else wants to touch. He has also personally estimated every job over two hundred thousand dollars for nineteen years.

There is a reason for that. Marty is better at it than anyone else in the building. In commercial mechanical contracting, bidding accuracy is the margin. Handing a seven-figure estimate to somebody who is not ready can put a contractor out of business.

Marty is also sixty-two, his knees are shot, and after nearly two decades the estimating function of an eleven-million-dollar business still lives mostly inside one man's head.

Angela Sperry runs nine million, mostly institutional work: schools, county buildings, a hospital annex. Three general contractors account for roughly sixty percent of her volume, and she has known all three since the nineties. There is nothing in writing with any of them because for twenty years there has never been a reason for it. They call Angela, Angela answers, the work gets done, and everybody gets paid.

Those relationships are one of the strongest parts of her business. They are also relationships with Angela.

Dale Rennick runs sixteen million, the biggest of the five, and the only one with a real service department. Two hundred and eleven maintenance agreements generate predictable revenue every month, exactly the kind of thing buyers like. His books are cash basis, kept the way his accountant set them up in 2004 to keep the tax bill down. Work in progress lives in a spreadsheet his controller built and understands.

It works. His controller has never missed a billing.

Priya Bhatt runs fourteen million, split about evenly between project work and service. Solid margins, low turnover, and a general manager who has been with her eleven years and knows the operation almost as well as she does. Then she gets an unsolicited call from someone who buys contractors and does not sleep well for a week afterward.

Not because she is afraid of selling. Because suddenly selling is real.

Curtis Nagy runs thirteen million with a mix similar to Priya's. He is fifty-four, the youngest of the five, and the only one who is not tired.

Five functioning businesses. Every one profitable. Every one the largest asset its owner will ever hold. And each contains things that make the company good at producing money that may not make it easy to transfer to someone else.

Nineteen Years of Reasonable Decisions

This is the part that gets skipped.

By the time most owners begin seriously considering a sale, a large part of the outcome has already been shaped. Not because they failed to prepare for a transaction, but because they spent years preparing for something else: running the business.

Marty estimates his own work because he is the best estimator in the building. Angela never papered her GC relationships because those men sent her work through two recessions on nothing but a phone call. Dale keeps cash-basis books because his accountant told him it would defer six figures in tax, and his accountant was right. Priya's general manager does not have a fifty-page operating manual because he has been beside her for eleven years. When something goes wrong, the two of them already know who handles it.

None of this is negligence. This is what running a contracting business well can actually look like.

Every one of those choices solved a real problem. Every one also created a different problem that stayed invisible because nobody had a reason to measure it.

That is the thing about transferability. A business can produce beautifully for two decades while depending heavily on knowledge, relationships, judgment, and routines that do not automatically move with the ownership interest. That does not mean the business is bad. It means some part of what makes it valuable may still belong to the people inside it rather than to the company itself.

Nobody sends you a bill for that. Not until someone tries to buy the place.

Stage One: I Want to Sell My Business

Four of the five arrive here within about eighteen months of each other, for ordinary human reasons.

Marty's knees are getting worse. Dale has a second grandchild in Denver. Angela's husband is retiring and wants to see Portugal while they can both still walk it. Priya got the phone call.

Curtis is different. We will come back to him.

The four believe they are starting a process. What they are actually doing is entering a market with businesses that already have strengths, dependencies, concentrations, habits, and risks accumulated over years. The sale process is not going to create those things. It is going to expose them and eventually price them.

The owners do not know that yet. They assume the process is how they will find out what the business is worth.

Stage Two: I Want to List My Business

This is where the four start taking very different paths.

Marty does not hire anybody. He has watched brokers take ten percent off contractors twice his size and cannot make the math work in his head. He knows what he has. He puts the business on a marketplace listing at four and a half times what he calls his earnings, a multiple he picked up at a trade association dinner from a man who sold a sheet-metal shop in another state.

Nobody asks Marty who estimates the work. Nobody asks what happens to his bid hit rate if he is gone for a month. There is no one in the transaction whose job it is to ask.

Angela signs on a phone call. The firm found her. Pleasant conversation, confident man, her sector is hot. He wants three years of tax returns and a customer list. She sends them within a week, and twelve days later she has a marketing package.

Nobody asks whether the GC relationships are on paper.

Dale goes to a firm somebody recommended, and that conversation is different. They want the WIP schedule. They ask who prices the service agreements, who makes renewal decisions, and what happens to the maintenance base if Dale is not the person who shows up when a chiller goes down at two in the morning at the hospital.

Then they ask him something nobody has ever asked: what would have to remain true about this operation for next year's earnings to look like last year's?

Dale does not love the answers he hears himself giving.

They tell him what they think the business could bring. It is meaningfully below the number in his head. Then they tell him why. They think he has twelve to twenty-four months of work before they would want to take him to market.

Dale is sixty-one. He has a grandchild in Denver. He hears twelve to twenty-four months differently than they do.

Nine days later, he signs with another firm. That firm wants three years of tax returns.

Priya and Curtis eventually end up at the first shop, separately, about a year apart. They get the same questions Dale got and the same uncomfortable pause.

Priya is told that her books should be converted and that the way the operation runs needs to become legible to someone who does not already know the answers. Roughly eighteen months.

She is fifty-nine. There is already a buyer calling. She wants this finished inside a year.

She says no thank you to the eighteen months. The firm takes the engagement anyway because a business can be marketable without being fully prepared.

Curtis gets the same recommendation.

He says yes.

Not because preparation guarantees a sale. It does not. But Curtis is about to spend eighteen months learning things about his own company before anyone else has a reason to price them.

The Commitment Problem

The engagement agreements the represented sellers sign are exclusive. That is not sinister. It is what makes the work possible. Nobody is going to build a proper marketing package, assemble a data room, and work a buyer universe while competing with three other firms for the same transaction.

But look at the sequence.

The seller makes the first major commitment near the beginning of the process, when optimism is high and independent information about the business is still relatively low. More information arrives as each next commitment approaches. The broker's valuation comes while the seller is choosing representation. Buyer indications arrive while the seller is deciding who gets exclusivity. The deepest accounting and operational findings arrive after exclusivity has already been granted.

The problem is not that anybody is doing the wrong job.

The problem is when the information arrives.

For the rest of the story: Part 2