Preparing for Exit

The Financial Foundations Contractors Can’t Ignore

For construction contractors, exit planning starts long before a sale is on the table — and clean, reconciled financials play a direct role in protecting business value. Buyers in the construction space examine financial statements to assess risk tied to project margins, backlog, working capital needs and cash flow. Inconsistent or poorly supported numbers can quickly erode buyer confidence.

One of the most critical areas is revenue recognition. Contractors should ensure revenue is recorded consistently and aligned with accounting standards, using separate accounts for different revenue streams. Buyers want assurance that earnings are sustainable, not inflated by timing issues or aggressive estimates.

Expense normalization is equally important. Owner compensation, personal expenses and one-off costs must be clearly identified and well documented. Unsupported add-backs are a red flag, especially in construction, where margins are closely scrutinized.

Working capital often becomes a negotiation point in contractor sales due to seasonal swings and project cycles. Understanding and maintaining appropriate working capital levels early can prevent last-minute price adjustments.

Practical advice for contractors: Implement a disciplined monthly close process, reconcile accounts regularly, organize job and contract documentation, and stress-test your financials as if a buyer were reviewing them.

If a future sale, transition or succession is even a possibility, now is the time to take a closer look at your financials. A proactive review can identify gaps, prioritize improvements and put you in a stronger position — whenever the time comes.

Marie Calabrese, CPA is the director of Gross Mendelsohn’s Construction & Real Estate Group. A partner in the firm, she specializes in working with construction contractors, architectural and engineering firms, and manufacturers.