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7 Things to Think About When Selling Your Scaffolding Business

Having been involved in more than 25 transactions in the scaffolding business, we have developed deep industry experience. When thinking about the sale of a scaffolding business, there are a number of areas that deserve particular attention that are specific to the scaffolding industry.

1. Equipment, Equipment, Equipment 

A critical element for any scaffolding business (lifeblood) is its equipment. It may sound silly, but many scaffolding companies do not have a very good handle on the amount and quality of the equipment they have. A dirty little buyer’s secret (especially in smaller transactions): the buyer may care very little about the actual financial performance of your business. If this is the case, they certainly care about your equipment. A failure to master the tracking of your equipment may cost you money in the transaction, or worse, may allow a buyer to claw back some of the purchase price they already paid you.

2. Rent-to-Re-rent 

Nearly every scaffolding company, yes even the billion dollar ones, is faced at some point with the question, “Do I invest in equipment or do I journey down the street to a friendly competitor and rent the equipment from him and re-rent it to my client?” Your ability to accurately track these expenses and portray them most favorably to a potential buyer may substantially increase the value of your business in an ultimate transaction. One other thing, don’t fool yourself, you’re probably not marking up the re-rent to the extent you think.

3. Capital Expenditures 

Capital Expenditures or CAPEX can tell the story of your scaffolding business. Problem is,  most sellers don’t know whether the story told by their CAPEX works to their advantage or detracts from their company’s value. This is made worse because not all buyers know how to evaluate a business’s CAPEX. What might look like a scaffolding business with very little free cash flow, thus making it an unattractive acquisition candidate to inexperienced buyers, might actually be the best candidate out there.

4. Financial Treatment of CAPEX

What’s good for an owner when it comes to the tax man might not be good for him when it comes to selling his scaffolding business. Many scaffolding company owners will stretch the rules and expense equipment  which instead, should be capitalized and depreciated over time. While this is certainly helpful to reduce short term taxes, it can be very harmful when it comes time to sell the business. The point here is not to say that you shouldn’t do this, it is that if you do it, you need to restate your income statement when it comes time to sell so you capture all the purchase price you can. In other words, if done right, you can have your cake and eat it too!

5. Know Where Your Profits Are Coming From

A few years ago, my client was approached to purchase a very nice scaffolding business. The business showed a very healthy cash flow, the problem was, it was being propped up by a single, once-in-a-lifetime job. The investment banker on the other side who was not experienced in scaffolding transactions, failed to recognize this and build the right story around it (both for his client and mine (the buyer)). As a result, the seller had unrealistic price expectations and we (the buyer) quickly saw the business wasn’t as valuable as we first thought. The result was that a transaction wasn’t completed. This is unfortunate for both the buyer and seller, as a carefully crafted description acknowledging the seller’s revenue mix would have helped both sides.

6. Financial Tracking of Performance Metrics 

This tip might apply to other business sales as well, but certainly applies to scaffolding businesses. As a general rule, if you can easily track a performance metric of your scaffolding business without too much effort or cost, you should do it. You need to make sure it is done consistently and accurately or you run the risk of “garbage-in, garbage-out”. I’ve seen many instances where tracking things such as equipment utilization, inventory shrinkage, customer charge backs, profitability by job, overtime vs. temporary workers, revenue/profitability by service, effectiveness of capital expenditures, “true” profitability in the sale of used equipment and others, would have allowed sellers to greatly increase the value of their business in a sale.

7. Sale of Used Equipment 

I realize not all scaffolding businesses sell used equipment (I’ve seen the arguments on both sides and definitely have an opinion on this issue). What isn’t open to argument is how you treat these sales from a financial reporting standpoint. Most business owners (and their accountants) have no idea how to best track these sales in order to maximize value in a sale of the business. I have this as point 7 because for many scaffolding businesses who do very little of this, it is not that big of a deal, but for those who do, it can be huge.

As you can see, there are nuances to selling scaffolding businesses. If you are contemplating a sale, it makes sense to hire an investment bank with scaffolding-specific experience. How the above items are described and portrayed in the offering materials will be an important part of the valuation equation and it will pay to have an expert on your team.

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