Episode 32: Selling A Building Company With Kevin Lovewell

In episode 32 of the Professional Builders Secrets podcast, we’re joined by Kevin Lovewell, Director of Negotia Group, based out of Brisbane, Queensland. Throughout this episode, we learn about Kevin, Negotia, and the blueprint of selling a business.

Kevin delves into exactly what you and your business need in order to be sold, as well as the absolute best time to sell your building company. He also discusses the sort of timeframe you should expect when you decide to sell your building company.

During the episode, we uncover the three questions you need to ask yourself if you’re thinking about selling your building company, as well as the all important question of what happens to your staff and assets after you’ve sold.

We also hear Kevins insights on how he see’s the future of the building industry shaping up, and he shares some fantastic advice for builders throughout.

Listen to the full episode to discover the ins and outs of selling a building company.

 

Kevin Lovewell - Director of Negotia Group

Kevin Lovewell is an entrepreneur, business builder and Director of Negotia Group. originally qualified as an accountant. Kevin has developed proprietary knowledge in start-up professional practices such as accounting and consulting, including having developed appropriate IP in training and development for firms such as family businesses, small and medium enterprises and large firm mergers.

Connect with Kevin

 

Timeline

1:02 About Kevin and Negotia. 

2:57 What you and your business need in order to be sold. 

3:59 The best time to sell your building company.

5:50 The three questions to ask yourself if you’re thinking of selling your building company. 

8:59 The timeframe of selling a building company.

10:05 What happens to your staff and assets when selling a building company. 

10:57 The blueprint of selling a business. 

13:09 Who does the handover when selling a building company? 

14:55 The challenges and blindspots when selling or buying a business.

16:35 Why Kevin chose construction business brokerage as his speciality. 

18:30 Kevin’s view on the future of the industry. 

23:34 Kevin’s advice for builders.  

26:10 What Kevin’s day to do looks like and how he can help you sell your building company.

 

Links, Resources & More

Negotia Group Website

APB Website

APB on Instagram

APB on Facebook
APB on YouTube

Join the Professional Builders Secrets Facebook group for builders & connect with professional builders world-wide.

Bosco Anthony:

Hello and welcome to the Professional Builders Secrets podcast, a podcast by the Association of Professional Builders (APB) for building company owners, general managers, VPs and emerging leaders. Here we discuss all things running a professional building company, from sales processes to financials, operations and marketing. We have another exciting episode from the Professional Builder Secrets podcast. I'm joined today by Kevin Lovewell, Director of Negotia Group. Kevin, thanks for being here today, mate.

Kevin Lovewell:

It's a pleasure, Bosco.

Bosco Anthony:

Tell me a little bit about yourself, your career and background, Kevin. It seems very interesting. And what does Negotia Group do?

Kevin Lovewell:

Personally, I've led a fairly adventurous life. I was a builder's labourer and didn't like being the bottom of the food chain. So, I decided at about 25 or 26 that I needed to get some sort of profession behind me. The only one I could think of where I would never be unemployed was accountancy. So I did my accounting degree, then I worked in corporate, management, I've worked in the building trade and banking, I've travelled the world using my MBA, and Negotia is I suppose, the end result. 

Kevin Lovewell:

It's not quite the entry to retirement, Bosco, but it's the thing that I wanted to do because I like doing it – rather than things I have to do because I've got to raise kids, pay a mortgage and pay a car off; things of that nature. So Negotia is business brokers and business valuers, the things that I like doing most.

Bosco Anthony:

It sounds like you've been able to merge your craft in a situation of circumstances. So I was going to ask you, how did you start assisting residential home builders with their exit plans and their sales? I'm sure this wasn't something that you woke up one day as a young kid and said, "I'm going to help people with their sales process and their acquisition process." So how did you stumble across this industry?

Kevin Lovewell:

I'll tell you a secret. I was the only one amongst my brothers who wanted to be a builder. So it's the closest I could get, Bosco, without actually holding a hammer in my hand. My father was a builder, his father was a builder, and my brothers are builders. I was always in the wrong place at the right time. That's how I ended up in accountancy, wondering what I was going to do. So I've worked in and around the building industry. I like it. I'm familiar with the language of builders. I'm also a closet renovator. I love sharpening chisels too.

Bosco Anthony:

That's really interesting. What types of residential home builders should consider selling their business practice? Do you have a wish list or a checklist for when a builder says to you, "Am I the right fit?"

Kevin Lovewell:

Well, let's frame it in the context of normal business investment; good businesses always sell. Average businesses sell when average businesses are ripe in the market; poor businesses will never sell. And if you're a core business in terms of building and construction, you've got to improve yourself. You've got to get better with systems and processes. If you're an average business, you will sell in periods where that business or that industry is right for the picking – and that's not at the moment. 

Kevin Lovewell:

If you're a good business, you will sell. A good business is systems and process. It's longevity in the market. It's connection with buyers and sellers. It's connection with the suppliers. It's how you run your business, how you measure performance and that you are actually achieving, not just making money, but you're keeping the money that you're making.

Bosco Anthony:

When's the best time to consider selling your business?

Kevin Lovewell:

That's a simple one, Bosco. It's when you're ready to sell. When you've decided that you wake up in the morning and you're not enjoying going to work. I must admit that was me in my accounting practice. It's why I'm in business valuation and business sales now.

Kevin Lovewell:

If you are planning on retirement, the best time to start thinking is two to three years out. If you are planning on making an acquisition, the best time to make the acquisition is two to three years before you actually want to crystallise that with your own sale. So, it's always a good time to be making your strategic plans or developing your strategic initiatives to improve what you're doing. But the best time to sell is when you want to get out.

Bosco Anthony:

Who is generally looking to acquire these businesses? Obviously, you're looking to help someone transform and look at an exit play. Where do you go to look for these businesses and are they builders or business owners who should get into that space?

Kevin Lovewell:

Bosco, in the present environment, the market at the moment is the people who are seeking to move their businesses either because they need more staff – because staff is one of the big issues in all businesses, in all industries – or those who are seeking new markets. So, if you've got something that you could consider a niche in terms of your clients, your suppliers, but even geographically, the people who are buying are people who want your business for one of those two purposes.

Bosco Anthony:

It's really fascinating, because I went through an acquisition process overseas before I moved to Australia, and I've always wanted to ask this question. Is there a checklist of things that every residential home builder needs to know about selling their business? Do you have something that is their reference point that they can look at?

Kevin Lovewell:

Yes. There are always those mental checklists, but I think one of the very first things that people should think about is to look at your own business and say, "Would I buy my business?" Do that sort of audit on your own systems and performance. If you would buy your business, you've got a fair clue that other people might find you attractive. But if you look at it and you say, "I've got to get out of this because I just don't know what I'm doing. I don't know where my next dollar's coming from," you'd be in that graph that I suggested you're not a good business. 

Kevin Lovewell:

That audit on your own business is the first thing on your checklist, but there are only three other real things. You've got the revenue generating capacity and how it comes to the business from a variety of different areas. You've got a gross profit margin that is close to or exceeding industry averages, and you've got a net profit margin that is competent – as in, its more than the sum of the parts.

Bosco Anthony:

For our listeners out there, let's get into the meat and potatoes of this interview. I'm just curious about what goes into the sale of a residential home building business. I've always been curious. I've always wanted to ask this question. I'm sure there's a bunch of processes, but what are some of the key things that a residential home builder should be aware of?

Kevin Lovewell:

The important element is knowing what your business is worth and why. We always do a written assessment of market value. It's one of the primary pieces of paper that helps us help our clients understand their strengths and weaknesses, the opportunities and the threats. Firstly, it gives them the opportunity whilst the business is on the market to start improving – not maybe to make the business more valuable, but certainly to make it more saleable. 

Kevin Lovewell:

So have a fair understanding of where the market is, because there are peaks and troughs, there are trends: "What is my business worth and why?" Then the systems and processes that are already in the business: how will the new owner actually run your business when you are not there? So systems, processes and documentation. These are all really critical elements of the selling process. And then you've actually got to find not just a person with the money in their back pocket, but they've got to like your industry. In our industry, they've got to have the appropriate licences as well.

Kevin Lovewell:

Those people have a choice of businesses. You've got to make it compelling that your business is the one they should buy or should acquire for these reasons, and they're the value builders in a business. So if you know what your business is worth, they have a fair idea of what your business is worth. Due diligence today, Bosco, is more invasive, more particular, more people putting their finger in than it ever has been at any time prior to this.

Bosco Anthony:

Is it fair to say that if you know your systems around your business better, you could potentially have a quicker sales process? Generally, is there a timeframe that one can estimate when they can get their business sold or does it really just depend on the market?

Kevin Lovewell:

That timeframe is an important question. If we move outside of southeast Queensland, for example, the timeframe starts to get bigger, because there are fewer people looking to purchase. If there is financing involved, we know in today's environment, the banks are particularly evasive, particularly when it comes to lending money. After all, they're spending all their available time and money and resources in lending for the construction of a house. Why would they lend for a business when they can lend on housing? 

Kevin Lovewell:

Now, the governments and industry bodies are telling the banks they've got to have greater depth and penetration in the small business market. But that is not happening in today's market.

Bosco Anthony:

How does that impact the staff and the assets generally? Do you find that there's a trend where people will want to keep the staff and keep the assets? Do you find that's something that's a full sale, where typically the assets are displaced? When you look at a traditional acquisition play, where do the staff and the assets fit in?

Kevin Lovewell:

There's a mergers and acquisition saying that the majority of mergers actually destroy business value rather than adding to it. In today's environment, even more than in the past, staff are vital. You won't sell your business if you can't guarantee that there are some staff involved, because we know that trades based businesses are always starving for labour. Without that labour, the business is actually dead in the water. As I said earlier on, it's one of the two prime reasons why acquisitions and mergers are occurring at the moment, because they want your staff.

Bosco Anthony:

Now you've told me a little bit about the sales process, is the process very similar to buying a home? What comes first? What comes second? Are there similarities to buying and selling a home? Or is this a completely different blueprint?

Kevin Lovewell:

It is completely different. It's like trying to drive a car blindfolded, sometimes. There are the owners who say, "My business is particularly vulnerable to the environment. So therefore, I've got to be invisible. Nobody's got to know that the business is on the market until it's sold." Now that's one particular end of the spectrum. And then at the other end, you can advertise it on directories, you can put it in the newspaper. That's a business that's somewhat easier because the buyers actually can tap you on the shoulder rather than the other way round. 

Kevin Lovewell:

The process starts with, "What is my business worth and why?" Then comes gathering all the necessary documentation. The job's not finished until all the paperwork is done. In our vault, we could have perhaps up to 300 documents that will be necessary for the due diligence process. Then there are the negotiations. Now in negotiations at the moment, Bosco, as with due diligence, the depth and breadth of what the deal might look like make it pretty intense.

Kevin Lovewell:

It could be anything from a share purchase, which has always been pretty rare, but sometimes they're coming more to the fore, to a business asset purchase, to a buy-in and an acquisition. Work in progress in the building industry is always one of those points of conjecture. It's pretty tough. So you also end up sometimes with long contracts, as in they become unconditional, but there are still three, four, even six months to go. 

Kevin Lovewell:

Then there comes settlement, and then there's the post settlement work as well. People forget that when you’re onboarding a new business, you might double in size and there's workarounds that have to be done that you fail to anticipate sometimes. That's where people like me who understand the process are really, really important because we're that extra pair of hands, because business owners don't know what they don't know.

Bosco Anthony:

Is the Negotia group responsible for the handover? When we talk a little bit about the handover, who does the handover typically, if you're selling to another business? And I've always wondered, what happens when you've got a new chain of management – who's actually training them in the background?

Kevin Lovewell:

Well, these are the projects that people forget about, Bosco, the actual settlement. We get to contracts, and we do the negotiation and we, working with the buyer and the seller, determine what those special conditions are. In Queensland, we can actually produce the contract for the sale of business. More often than not we do in small to medium enterprises. The solicitors get involved, and they're the people who effectively do the handover. They've got those checklists that ask, "Is the electricity account changed over? Are the phones here? The car registrations and the road worthies?” Don't forget you need road worthies on cars – are they all performed? 

Kevin Lovewell:

Then when contracts are at, let's say the unconditional, and due diligence is complete, I always recommend to buyers, "Run your payroll as if you've got these people on board. Run it at least twice before you actually have the total responsibility for the payroll, just to check to see that you get the same answers that the seller's getting."

Kevin Lovewell:

So even little projects like that, that's where I'm closely involved with both parties at this point. I'm not working for the vendor per se, I'm just trying to get the deal over the line and ensure that people don't forget about those little bits and pieces that you've been talking about.

Bosco Anthony:

Well, it sounds like you've been doing this for a long time. What I love about this interview so far is there's so much to consider. There are so many unspoken conversations that if you don't really pay attention to this or have the right expertise, you could land in a lot of trouble. I really wanted to ask this other question here, which is, what are some of the challenges and blind spots that come with either selling a home business or buying a home building business, when it comes to the trends out there? What are some of the things that people should be really aware of?

Kevin Lovewell:

Keep your foot on the accelerator whilst you are preparing to sell. I have a funny story. One particular client decided to sell. We engaged with a prospective purchaser, the contract was signed and the seller and his wife and three children went on a round the world trip. That round the world trip cost them about $30,000 in actual cash and about $150,000 in lost capital. 

Kevin Lovewell:

So point number one, keep your foot on the accelerator. You've still got to behave as if there's a long-term plan in position. Secondly, it's the staff. You've got to keep the staff under control, but the unofficial grapevine will bite you if you're not prepared to answer questions honestly and ethically, as staff invariably find out. The purchaser wants those staff, and they want them unstressed. So you've got to come clean, and you've got to talk when the moment is right. 

Kevin Lovewell:

I suppose the third issue is those myriad little things that you take for granted, such as your workers' compensation bill, your webpage domains. All these things have to be handed over. The elements on their own are fairly simple, but when you add them all up, there's a lot of work.

Bosco Anthony:

That's true. What interested you in specialising in this industry, outside of the fact that you secretly had a passion for construction and building and everything else? When it came to the actual advisory process, was this one of those things where you got into business, you helped a business get acquired, and you thought, "I actually love doing this"? At what point did you realise that this was your life purpose?

Kevin Lovewell:

I think it's from the accounting and consulting type roles that I played. I have a legacy of clients and businesses basically in or around the construction industry. It doesn't mean that I haven't sold other businesses, but I'm most well known in the building and construction game. I understand the industry and the language, and it's pretty poorly serviced as well, simply because it's much more difficult. Work in progress, as we've talked about, is one of those issues that unless you've been there done that, you don't understand what work in progress in a construction company is.

Bosco Anthony:

The only reason why I know it is because I actually learnt about it in the podcast when I was picking Russ and Andy and Sky's brains. We had an episode dedicated to this as well. I learnt about the tax implications that came with it too. And so you learn about it, but it's almost like an unspoken dialogue.

Kevin Lovewell:

Well, doesn't Russ say that's one of his most viewed podcasts? Because it is so topical and, forgive me, but there's an awful lot of accountants who don't reconcile work in progress as accurately as it should be done, I would say, at year end. "What number do you want me to put in? Oh yeah, let's do that."

Bosco Anthony:

That's probably why Russ likes you because he's always poked fun at the accountants' approach to this. We could talk about the accounting aspects till the cows come home. But it's definitely an interesting topic that most people don't consider, because there's really not a lot of awareness about it. That's really what prompted me to learn little bit more about it. 

Bosco Anthony:

Now, let's talk about the industry a little bit. What are you doing in the current market and landscape to aid home builders for a better future? Is the advice to a young home building owner and a veteran home building owner the same? Are the resources the same, or are they different for both?

Kevin Lovewell:

Well, yes, the landscape is changing. The environment has changed since February or March of 2020. Supply lines have become difficult to manage. And it's not just the supply lines of the normal lumber and roof trusses. It's the supply lines for porcelain, the tiles and things of this nature. Building trends are altering. There's a growing awareness that certain trades such as brick layers are going to be scarce. And you have to actually plan to be able to put a house together, maybe change some of the construction methods that you're using. 

Kevin Lovewell:

There is not an awful lot of R&D in the house building industry. Anybody who can create a niche for themselves in the context of contracts and supply and build is going to create value for themselves, Bosco. So is anybody who believes that they can create a niche, either geographically or in a particular area such as micro homes, small homes, homes built in factories, homes built in pods. All these are now on the board, so to speak, in the context of building a house.

Kevin Lovewell:

It's not the construction process; it's always the end result. People want to have a house they can call a home. If you can produce that for them, it's going to be a wonderful opportunity for new builders. For the builders exiting, the important elements are that you can't run a construction company with a hammer in your hand. Those guys out there who insist on being the Jack of all trades are doing themselves and their business value a disservice. 

Kevin Lovewell:

If you are purely technical or purely operations focused, and you are an owner, you are certainly not an entrepreneur. I hope people don't get too offended, but I've said it before, you can't run a business with a hammer in your hand, Bosco. You have to be able to control your business, not let your business control you. If you're working at nine o'clock on a Sunday night, we know which direction that is.

Bosco Anthony:

Yeah. And it's that old saying about, "Are you in the business or on the business?" At the end of the day, you've got to play to your strength as well.

Kevin Lovewell:

Well, this is the toolbox that APB has been successfully selling now for a few years. I think it's a remarkable set of achievements that so many builders have taken on board exactly what they're preaching, because it's been said since I was a builder's labourer on my dad's blocks of dirt on the sunshine coast in the early 1970s.

Bosco Anthony:

Yeah, I totally get it. It's one of those things where APB’s mission is to really transform the industry and change it for the better, and to break away from the stigma and revolutionise the systems that come with it as well. My next question is a favourite question. I love asking this question because everybody gives me a different lens and perspective. So my question to you is, where you are today, how do you view the future state of the residential construction industry? What's your perspective on the future of this particular space?

Kevin Lovewell:

I believe a rising tide lifts all boats. Now in that context, it is going to remain profitable for the good builders. In that context, further development, there's always going to be government underpinning of the building and construction industry in Australia. It is so fundamentally basic and necessary to our economy. But that doesn't mean that you can forget about the fundamentals such as good cash flow, paying attention to your contracts and your forward risks. 

Kevin Lovewell:

Bigger businesses are going to find it easier in the next three to four or five years. So, you can be small, or you can be very big. The guys in the middle of this, those ones who do say 15 to 20 houses a year are going to find life difficult. Get bigger because the economies of scale and the ability to have high turnover and low margins is a whole lot easier when you're double the size that you presently are.

Bosco Anthony:

So it's also about thinking about the end and keeping it in mind. Where do you want to go and how do you want to get there are bigger questions to ask people too?

Kevin Lovewell:

Well, yeah. Not everybody wants to be a mega corporation. There are those, like me, who are quite comfortable with four staff. There are those who do have a plan. If you want to put a strategy in position, give yourself sufficient time to reap the rewards of that strategy. Then put your business on the market. Don't put your business on the market and say, "This business can be here and it can do that,” because nobody's buying the promise of future revenue.

Bosco Anthony:

If you look back now at your lustrous career, and you had to go back in time, what advice would you give a younger version of yourself? And more importantly, what advice do you give the builders out there who are looking to buy or sell a residential home business, people who are listening to this particular episode? What advice do you have for them as well?

Kevin Lovewell:

Look carefully at the business. There are the fundamentals of business ownership – the business model. If it's ticking more boxes than it's crossing, it's certainly something that you should be doing. You can always build a business from the ground up. It takes time. It takes a whole lot more effort and a whole lot more concentration. As a young builder in today's market, technicians start businesses, but professionals, entrepreneurs sell businesses. 

Kevin Lovewell:

If you are going to stay in technician mode, be comfortable where you are and you'll close the door in 20, 30 years and you'll give your chisels to your son-in-law and you'll move on. But if you want to be an entrepreneur, you've got to wear the hat, and have the attitude of an entrepreneur. I think that's the guidance for young tradies who are going to start in business. Being a tradesman is a great thing, and it's a great investment in future value, but you want to harvest that value. You've got to actually be more than a tradesman. You've got to be an entrepreneur.

Bosco Anthony:

If you go back in time and you look at a younger version of yourself, what's the advice that you’d give yourself, looking back?

Kevin Lovewell:

That's a pretty difficult one because I'm not one who actually takes a whole lot of time in retrospect. But I do remember walking onto a block of land and holding the string and putting the first profile peg in, then walking out after we handed the set of house keys to a proud owner. You don't get that sort of thrill from balancing a set of books. Maybe I should have been the one who became the builder rather than the two brothers.

Bosco Anthony:

We talked about the perfect handover experience with the crew at APB. It was such an amazing episode where we talked about what goes into the handover process for a home. It's a whole different world out there.

Kevin Lovewell:

Oh yes. The real beauty of any business is if you enjoy getting up in the morning and doing what you're doing. I've always done that, whether or not I've been in corporate accounting, chief financial officer, I was a GST guru once upon a time as well. But I've always enjoyed the challenge of solving problems, of finding solutions and making my own life a little bit easier. There's nothing much that I would seek to change or advise the young me. Maybe don't get into that car accident.

Bosco Anthony:

What does your day look like today as a financial whisperer, as I like to call it? What does that entail typically and how many clients or home builders are you dealing with on a week to week basis?

Kevin Lovewell:

I spend a lot of time actually on the phone, talking to people. I’m either trying to tap people on the shoulder and say, "Are you interested in this type of investment?" on behalf of my clients that I'm representing, or indeed out there investigating businesses. I do a lot of valuation work. So my day is determined very early in the morning. We have a meeting between the partners and the staff, "What is on our agenda?" 

Kevin Lovewell:

Every month we have a Saturday morning cup of coffee and that's our strategy session for the month ahead. We're always looking at our marketing costs. We're always measuring bums on seats. We're always measuring the important KPIs of our business. But we trust the process. We know that there's going to be another call. So most of my day is actually trying to satisfy the clients I've got, rather than getting new clients.

Bosco Anthony:

How do residential builders work with you? If they wanted to come to you for advice on selling or acquiring a business, what does that relationship look like?

Kevin Lovewell:

It’s not overly complex. The very first point is people would phone us if they're thinking about selling, or if they're reaching the conclusion of their deliberations and they do want to sell. We help them with, "What is my business worth and why?" We work within a system to actually gather the necessary information and prepare their business to sell. We walk through all the issues that could happen, might happen, should happen. We give them the timeline. We give them all the necessary help.

Kevin Lovewell:

Business owners are skilled and experienced in running their businesses, but when it comes to time to sell, that's when they need the services of somebody who can answer the questions, who can take that burden off their shoulders. We are that extra pair of hands. Then there is always the fielding of calls, helping people to frame what it is they want out of a business. Is this the right business for them? The negotiations follow, and then it's the legalese of the funding, the finance, the handover.

Kevin Lovewell:

You’ve got to get in the trenches with your client. That's, I think, what we pride ourselves on, Bosco. We are in there. We always have a weekly phone call with our clients. We keep them in the loop of what's happening or not happening. Who's talking, who's not talking, who's arrived, who's disappeared. We try to make the journey as comfortable as possible, even if there are 101 questions that are going to be asked that they might not anticipate. We've at least done it before.

Bosco Anthony:

This has been a really insightful interview; I think I could talk to you about this process for hours, and we'd love to have you back in the future. But my final question for you is: what do you love the most about the work you do today? Is it that discovery, the evaluation of the business? Is it the working with the clients and handholding them through the process? Is it the coaching? If you look at all the different entities that you play, you're wearing different hats as well. What do you love the most today when it comes to this particular process?

Kevin Lovewell:

Well, I suppose Bosco, apart from the fact that each day brings different challenges to it, the important element is the service we provide. That intermediary between buyers and sellers is an institutional service. Brokering hasn't been around an awful long time. It's only since the 1950s and 1960s when brokering in Australia became a profession and an industry in its own right. 

Kevin Lovewell:

Being that intermediary is a very, very trusted position. Somebody is handing you their child, for want of a better word. They built it, they created it, and now it's got to be handed over and they want to see it. They want their legacy to be there in 10, 15 years. They want to hand it over to the right person. So I'm fairly proud of the fact that people can return to the scene of the crime, so to speak, and see a business that they built, they created, going on to bigger and better things. When a transaction is successful, it is a wonderful experience for both buyer and seller.

Bosco Anthony:

Kevin, I want to thank you for your time today. This has been an absolute pleasure getting to know a little bit about this world that you live in. It's amazing to play the role of being a fly on the wall and seeing this come to life. I really appreciate all the insights and really want to thank you for your time today.

Kevin Lovewell:

Bosco, it's been a pleasure. Thank you.

Bosco Anthony:

Thank you for listening. Remember to subscribe to Professional Builders Secrets on your favourite podcast platform and leave a review. To learn more about how the systems at APB can help you grow your building company, visit associationofprofessionalbuilders.com. See you next time.