If you’re thinking about selling your construction company—whether that’s next year or five years from now—there’s one thing buyers will scrutinize long before they discuss a purchase price: your financials.
While a strong reputation, loyal customers, and a robust backlog are valuable assets, buyers place significant weight on the quality and reliability of a company’s financial information. In today’s construction Mergers & Acquisitions (M&A) environment, buyers conduct extensive due diligence around profitability, project performance, cash flow, and operational risk to better understand the sustainability of earnings.
Fortunately, many of the issues that affect valuation and buyer confidence can be identified and addressed well before a company enters the market.
Buyers Want More Than Revenue Growth
While growth is important, buyers are increasingly focused on predictability. They want to understand how your business generates profits, whether those profits are sustainable, and what risks may exist beneath the surface.
For construction companies, that means financial reporting needs to tell a complete story—not just how much revenue you’ve generated, but how efficiently projects are managed, how reliable future work is, and whether the business can continue to thrive after ownership changes.
Clean Financial Statements Are the Foundation
One of the first things buyers evaluate is the quality of your financial reporting.
Financial statements should be accurate, timely, and easy to understand. Buyers will look for consistent reporting practices and may become concerned if they uncover unexplained adjustments, unreconciled accounts, or large fluctuations that cannot be clearly supported.
The level of assurance associated with your financial statements can also matter. Depending on the size and complexity of the transaction, buyers may prefer financial statements that have been reviewed or audited by an independent CPA firm. CPA-reviewed or audited financial statements can provide buyers with greater confidence in the reliability of the financial information they are using to evaluate the business and may help reduce questions or uncertainty during due diligence.
For construction companies in particular, having reviewed or audited financial statements can also demonstrate that the company has established financial reporting processes and is accustomed to providing reliable information to outside parties such as lenders, sureties, and other stakeholders. If a sale may be several years away, business owners should consider discussing with their CPA whether moving to reviewed or audited financial statements makes sense as part of their long-term exit planning.
Working with a qualified CPA firm can help improve the accuracy, consistency, and reliability of financial reporting, while also providing valuable insights that can help management identify and address potential issues before a buyer does.
Before pursuing a sale, consider:
- Reconciling all balance sheet accounts
- Reviewing aged accounts receivable and accounts payable balances
- Reviewing related party transactions
- Identifying one-time or unusual transactions
- Ensuring financial statements are prepared consistently from period to period
By identifying and documenting these items ahead of time, owners can help avoid surprises during negotiations and support a smoother, more accurate valuation discussion.
Your Work-in-Progress (WIP) Schedule Matters More Than You Think
For many construction companies, the Work-in-Progress (WIP) schedule receives as much attention as the financial statements themselves.
Buyers place significant value on reliable project reporting because it provides assurance that earnings are supported by actual project performance. Inaccurate cost estimates, undocumented change orders, and significant margin fade can raise red flags during due diligence, as they may suggest that project profitability and reported earnings are not being measured consistently or accurately.
A strong WIP schedule should clearly support:
- Percentage-of-completion calculations
- Estimated costs to complete
- Overbillings and underbillings
- Agreed contract amounts and approved change orders
When buyers can rely on the accuracy of WIP reporting, they gain greater confidence in reported earnings and are better positioned to evaluate the quality and long-term sustainability of those earnings.
Backlog is a Window into Future Revenue
A healthy backlog helps buyers understand where future revenue will come from and how much work is already secured.
However, buyers are not just evaluating the size of the backlog—they are also assessing its quality. For construction companies, a strong backlog can increase buyer confidence by providing visibility into future revenue opportunities and making operating results more predictable.
During due diligence, buyers will often ask questions such as
- How much work is contractually secured?
- What percentage of backlog comes from repeat customers?
- Is the backlog diversified across industries and customers, or concentrated among a few clients?
- What profit margins are expected on the remaining backlog?
A backlog that is supported by signed contracts, recurring customers, healthy margins, and a diversified client base can provide buyers with greater confidence in the sustainability of future earnings.
Prepare for a Quality of Earnings Review
Many buyers, especially private equity firms and larger strategic acquirers, conduct a Quality of Earnings (QoE) review before completing a transaction.
A QoE review goes beyond the financial statements to evaluate the sustainability and quality of a company’s earnings. The review helps identify non-recurring items, unusual transactions, and other factors that may impact normalized profitability, while also assessing key financial metrics and trends.
Companies that prepare for a QoE review in advance are often able to navigate the sale process more efficiently, build greater buyer confidence, and reduce the likelihood of unexpected valuation adjustments or deal delays. Being proactive can also help management address potential concerns before they become negotiating points during the transaction process.
The Bottom Line
The best time to prepare your company for a sale isn’t when a buyer shows interest—it’s years before you plan to exit.
From a buyer’s perspective, strong financial reporting, reliable job costing, clear backlog visibility, and well-documented processes create confidence. These factors provide transparency into how the business operates and make future performance more predictable. Companies that can clearly demonstrate these qualities are often viewed as lower-risk investments, which can help support smoother negotiations and stronger valuation outcomes.
Whether you’re considering an eventual exit, exploring growth opportunities, or simply want a better understanding of what drives your company’s value, we’d be happy to start the conversation.
If a future sale is part of your long-term plan, now is the time to evaluate whether your financial reporting is ready for the level of scrutiny a buyer may bring. From reviewing your financial reporting processes and WIP schedules to determining whether CPA-reviewed or audited financial statements make sense for your business, LSL’s construction professionals can help you identify opportunities to strengthen your financials well before a transaction is on the table. Contact us today!
