Experience with commercial construction?

October 16, 2025

by a searcher from University of Pennsylvania - The Wharton School in Danville, CA, USA

Hi Folks, Does anyone on here have experience with commercial construction? I'm looking at a commercial plumbing and excavation company (primarily new construction and retrofits... not cleaning drains.) They are about $6m in revenue doing $600k in SDE. It has many solid points: - I met the owners and they seem very honest and trustworthy... even sharing things you may not share if you're trying to pitch a buyer. I really got the sense they would want me to be successful at the next stage. - Solid history of cash flow (predictable every year with a slight boom a few years ago toward the end of COVID with a decline the last couple years, but on track with the growth from the years prior.) - Non-union - Project sizes between $100k and $1.5m so creates steady work - Monday to Friday work. - Both of the needed contractors licenses I could get in about a year and the owner will lend his for that time. - They are the largest non-union firm who does what they do in their market. - They have PMs who manage the day-to-day work. - AA rated insurance with almost no loss. - Selling for about 2.3x SDE inclusive of WC from the last 6 months. Potential challenges: - Concern about transferring the owner's credibility with GCs to me. They have about 7-10 regular GC customers so some concentration. - Owner thought they could only grow to about $8m with existing team and labor shortages on equipment operators are a major pain point for them. They said to really grow that part of the business they would need to become a union shop because it gives them access to more labor. But cost for non-union plumbers is $30-40/hr where union cost is $90/hr. So recruiting and retaining labor will be a challenge. - Their operating profit is only about 22% with SDE being closer to 10-11%. When I looked at similar companies (plumbing) sold on SearchFunder's deals, most have an SDE closer to 15-28%. (Maybe this is an opportunity unless the issue is structural or how they typically price.) It's also not clear to me if this is for plumbing service or construction. - There is a 10% retention so 10% of the contract value for the job is paid at the end of all of the GC's construction (so after roofing, flooring, landscaping, etc). So could be a delay of 4-9 months depending on the job. - They lose about###-###-#### months due to weather and they try to pay their guys for a portion of that, or keep them busy on non-paying jobs around the office. - Current owner in the business hasn't had a vacation for more than a day or two since he started 3 years ago. The other owner thinks it's his leadership style, not his ability to step away. - All work is bid. Though they have a lot of recurring customers, they must bid each project. He said they have a good relationship so can call after they submit the bid, move things around, and win the deal. But this only works with existing GCs. For new GCs it can be harder to win work. - The original owner has been doing plumbing work for 40 years and can spot issues with plans (or how to bid it different and cheaper). This would be lost unless I can find someone to replace this. I'm a 20 year business development guy so I'm less worried about transferring relationships. So my biggest concern here is one of cash flow... having enough sitting in the bank account for rainy days, and delayed GC payments. How would I mitigate this? What's the math to know how much cash I need in my account day 1 to not run into an issue? The second potential issue I see is labor shortage. What have you seen best-in-class construction companies do to retain their employees? Also, what's the growth path you see? How would you expand this business in the 6-18 months post-close? Also, shoot holes in this deal. What do you like? What don't you like? Feel free to add your own experience. For what you don't like, is there a mitigation path? Thanks! Cory

Reply by a searcher
from Simon Fraser University in Ontario, Canada

Hi Cory, Be careful with the cash flow. Make sure you understand what their expectations are for the holdbacks (I see that you call it retention in US?). The owners will see that as money that is owed to them, as it is associated with work performed during their ownership, but you as a buyer should see it as working capital. Make sure there is alignment there. Imagine you buy the company tomorrow and you start a new job next month: -you are buying materials right away, and pay for them on a 30 days term -you are paying for your labor and your overhead weekly -you are invoicing at the end of the month (in Canada we are also paying the sales taxes when we invoice, so more cash out of the pocket, not sure if it is the same in US) and you are being paid 45 days later if you are lucky, 75-90 days after if you are not -you have 10% holdbacks that are being paid 60 days after substantial completion, which could be 1 year from now -your margins are very low, SDE (so before taxes and debt repayment) being equal to the holdbacks Also, consider: -the way we mitigate the above in the trades is that we overinvoice, front load the progress invoicing. That means that the current owners might already get all the gravy from the current jobs, before closing, so you will be left with all the cost and no SDE -the more you grow, the more the holdback amount grows, so more working capital is needed -I dont see how you can service any debt with this company Feel free to connect if you want to have a chat

Reply by a professional
in Austin, TX, USA

Hey Cory, great breakdown. I’ve worked with several commercial construction and subcontracting firms (plumbing, HVAC, and excavation) in the $5–15M range. This looks like a solid, honest business with good bones. Biggest flag is cash flow timing since retention and weather delays can choke liquidity fast. I’d plan to have two to three months of operating expenses in reserve (around $900K to $1.5M for a $6M firm) or a solid line of credit tied to receivables or WIP. Negotiate progressive billing where possible. On labor, best-in-class companies keep people through consistency, bonuses tied to project performance, and simple advancement paths. A profit share or quarterly bonus pool often beats chasing union wages. The owner credibility risk is real, but you can bridge it with joint GC introductions, keeping the owner on as a 6–12 month consultant, and hiring a strong senior estimator or PM. Margins at 10 to 11 percent SDE are light, so it’s worth digging into job costing, overhead allocation, and pricing discipline. There’s likely three to five points of efficiency upside. Growth path ideas include adding service or maintenance work for steadier cash flow, expanding your GC base, and modernizing estimating and project management systems. Overall, this looks like a good buy at about 2.3x SDE if you manage cash, shore up operations, and build bench strength early.

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