How do I tell what a construction company owner actually takes home?

A construction owner’s income rarely shows up as one tidy line. It arrives as wages, draws, dividends, a truck, a phone and sometimes a spouse on payroll. The profit on the page can be higher or lower than what the business can really support. Buyers who rebuild owner earnings job by job get a clearer picture than buyers who copy the bottom line.

Owner pay, draws and family on payroll

Start by listing everything the owner and relatives take out, in whatever form. Then ask what it would cost to hire a competent manager to do the owner’s work. Compare the two figures with your accountant to see how much of the owner’s pay is for work a manager would do. Ask who on the payroll works full days, and who is paid for convenience. Be careful with the same exercise in a plumbing company: the work here is project-based.

Equipment the books have put off

A contractor can look profitable by running old machines and trucks longer than is sensible. Ask for an equipment list with ages, hours and condition, and have someone who knows the trade look at it. BDC’s equipment valuation guide, listed in the sources below, explains how used equipment is assessed. What the owner skipped spending becomes your spending after closing.

Margins job by job

Ask for the original estimate and the final cost on recent jobs, and look at where they differ. Ask which jobs lost money and why. A strong year can hide a few bad ones, or the reverse. Also ask how billings are timed and how much customers are holding back, because cash on hand and profit on paper can be far apart in a project business.

Reading the statements together

• Ask for several years of statements, not just the latest.
• Compare the statements to the bank deposits and the job files.
• Ask your accountant to prepare the owner-earnings adjustments in writing.
• Ask the seller to explain each adjustment out loud.