Build Wealth Before You Step Away

There’s a version of this story that plays out more often than it should.

A contractor spends 30 years building a business. Good reputation. Solid team. Healthy revenue. When it’s time to think about stepping away, they look around and realize most of what they’ve built is tied up in the business itself… and the plan to get out is fuzzier than they’d like to admit.

John Steiger has seen it from every angle. He’s a financial advisor and founder of Wealth Planning Resources, based just outside Boston, and he’s spent the better part of 20 years working specifically with contractors and builders. He joined Reece on Builders Budgets and Beers to talk about what exit planning actually looks like, why most builders wait too long to start, and what the ones who get it right tend to do differently.

Here’s what came out of that conversation.

The number one mistake: confusing a successful business with a retirement plan

When Reece asked John about the biggest red flags he sees in contractor finances, the answer wasn’t complicated.

Most owners don’t have a real picture of their personal financial situation. They know what the business makes. They don’t know whether that translates into an exit they can actually live on.

“They love what they do,” John said. “They can’t imagine not doing it. So the question of how they’re going to get out — where the income comes from, whether they’ve saved enough — it stays in the back of their mind but never really gets addressed.”

The business feels like the asset. But unless it generates recurring revenue or has a clear buyer, it may not be worth what the owner thinks. And even if it is, relying entirely on a future buyer’s cash flow to pay you out is a fragile plan.

The fix isn’t complicated. It’s starting earlier than feels necessary, and building assets outside the business while the business is still running well.

What the valuation actually looks like

For a contractor doing $10–25 million a year, the honest answer on valuation is that it depends — and for most, the number is lower than expected.

The businesses that command the highest multiples have recurring revenue. Landscape companies with service contracts, home builders who’ve added maintenance programs, anyone who can show predictable income month to month — those businesses trade at four times EBITDA or more. Private equity has been rolling them up for years because the revenue is forecastable.

A project-based construction business without that recurring component? More likely one to two times revenue, maybe less, depending on pipeline and profitability.

“It just depends on what you’ve got,” John said. “If you don’t have recurring revenue, the multiple’s going to be a lot lower.”

For contractors in the custom home or high-end remodel space, John’s take is clear: the future is in maintenance contracts. Clients who spend $5 million on a home don’t want to manage their own upkeep. Bundling maintenance into what you offer isn’t just a service add — it changes how your business gets valued when you’re ready to leave.

Give it a decade

The number John keeps coming back to is ten years. That’s the runway that makes everything else manageable.

With a decade, you have time to build assets outside the business. You have time to identify who inside the company could take it over, and actually develop them into people who can run it. You have time to figure out how the transition gets funded without putting impossible pressure on the next generation of owners.

Five years can work if the circumstances are right. Two years is very hard. The owners who try to exit on a short timeline are usually the ones who end up either walking away from money or staying longer than they planned because the business isn’t actually ready to run without them.

“Give it a decade,” John said. “Then you have time to catch up on savings if you need to, groom your people, get the right coaching in place for sales, management, communication. All of it.”

Building wealth outside the business

This is where a lot of contractors fall short — not because they’re making bad decisions, but because they’re not making intentional ones.

The instinct when the business is profitable is to reinvest. Buy the truck. Buy the equipment. Run expenses through the business. All of it makes sense in the moment. None of it builds net worth you can actually access when you step away.

John’s consistent recommendation is to treat retirement contributions the way you treat any other business obligation — as a non-negotiable line item, not something you get to when there’s extra cash. The IRS gives business owners generous contribution limits for a reason. Max them out. Start early. Don’t stop during downturns if you can help it — those who kept funding their plans through 2008 ended up buying into the market at the bottom.

“I’ve worked with companies for 20 years,” John said. “The ones who made it a priority and kept going, they’re leaving with heavy seven-digit accounts. Just from grinding it out every single year.”

Buying the building you operate out of is another move that comes up often. Real estate that generates income or appreciates independent of the business is exactly the kind of asset that gives you flexibility when the time comes to exit.

The framing that John keeps returning to: don’t build a business that funds your lifestyle. Build a business and build assets alongside it. The two are different things.

Grooming the next generation — and phantom equity

For most contractors in the $2–25 million range, the exit is going to be internal. A family member, a key employee, a small group of people who’ve been in the business long enough to actually run it. That’s the realistic path.

Which means the work of identifying and developing those people can’t wait until you’re ready to leave. John’s biggest concern on this front is business development. It’s the skill that’s hardest to find and hardest to teach, and it’s the one that most technical people in the trades don’t naturally have. A great project manager who can’t bring in business isn’t a future owner — they’re a great project manager. Someone has to be a rainmaker, or the business slows down the moment the current owner steps back.

On the equity side, John is a proponent of phantom equity plans — sometimes called synthetic stock — as a way to bring key employees into the ownership mindset without actually giving up ownership before you’re ready.

The way it works: the employee participates in the upside of the business, gets a portion of profits, and may have rights to a payout if the company is sold — but without voting rights, without liability, and with a forfeiture clause if they leave. It looks and smells like ownership. It creates the behavior of an owner. And it doesn’t require handing over actual equity to someone who’s still proving themselves.

“If you can get them involved early and thinking like an owner,” John said, “your future as far as exit goes is going to be a lot easier.”

The conversation about taxes

One thing that came up in the conversation that’s worth naming directly: the goal isn’t to minimize taxes at the expense of showing profit.

It’s a trap a lot of contractors fall into. Run everything through the business, depreciate every asset, keep the numbers looking thin so the tax bill stays low. The problem is that a business with thin profits isn’t worth much to a buyer. If a third party ever comes in to look at what you’ve built, they want to see cash flow. They want to see that the business actually makes money.

Qualified retirement plans are one of the tools that thread the needle — they’re a tax deduction, but they demonstrate cash flow capacity. A business that funds $500,000 in retirement contributions annually is a business that clearly generates real income.

“You have to show profits if you want someone to buy this thing,” John said. “Nobody wants to pay taxes. But if you want to sell to a third party, you have to have strong, clean numbers.”

Start before it feels urgent

The most useful thing John said in the whole conversation might be the simplest.

You don’t have to be thinking about exit to start doing exit planning. The fundamentals — building assets outside the business, maximizing retirement accounts, identifying and developing future leaders, getting a real picture of your personal financial situation — those are just good business practices. They pay off whether you exit in ten years or twenty.

The contractors who struggle most are the ones who wait until the urgency is high and the runway is short. The ones who do it well started earlier than they needed to and treated it like any other part of running a serious business.

“Be good business owners,” John said. “Do the right thing. Build assets. Reward your people. Have your advisors in place. Do that early on and it’s going to pay off.”