At some time or another, construction company owners must hang up their hard hats. But what will happen to your business when you retire or move on to the next professional opportunity? And what if you suddenly can’t work for an extended period, because of illness or injury? Having a succession plan in place is key to ensuring business continuity.
Even if you’re nowhere near retirement, it’s a good idea to start work on a succession plan early. The best ones often take years to implement.
First steps
Among the best ways to begin building the framework of your succession plan is to determine “what you’ve got.” You know you own a construction business, but how much is it worth and what are its primary value drivers? To determine these things, you’ll need to engage a qualified valuation expert familiar with the construction industry.
In addition, you should clearly outline your goals for retirement or the next stage of life. That is, do you intend to step down altogether or gradually transition to, say, a part-time schedule? Some business owners relinquish ownership but keep a seat on the board of directors.
Be sure to include all stakeholders. Discuss your succession plan with family members and, if appropriate, key colleagues and customers. Give them an opportunity to provide input and listen carefully to what they say.
You’ll also need to choose the best method to transfer ownership of the company. This could occur through a sale, stock gift, buy-sell agreement, trust or other option. Don’t forget to address retirement and estate planning — how will your succession plan help fund your retirement and provide for your family and heirs?
Revised business plan
Another important step is revising your business plan to incorporate an eventual ownership change. A business plan is essentially a baseline for establishing strategic and financial objectives so you can monitor progress toward them.
The plan should also define the responsibilities of each executive and manager. Your construction company’s succession depends on the leadership team’s ability to understand and carry out the objectives of the business plan after you’ve stepped down.
Finally, your updated business plan should include a section on how you intend to go about identifying potential successors who are willing and able to take over — whether they be family members, employees or a third party. Describe how you plan to train and mentor a chosen successor. Training can include industry certification courses, leadership workshops and business management classes. Mentoring typically involves one-on-one meetings and job shadowing.
Professional advisors
A solid succession plan will require the input of outside advisors. Your advisory team should include a CPA, attorney and, as mentioned, a qualified valuation expert. Many contractors also meet with business consultants or brokers, insurance experts and estate planning advisors.
These experts can help you fine-tune the many minute details of your succession plan. When the time comes for you to step down, they can guide you through the execution process to minimize the financial risks and tax consequences of, say, activating a buy-sell agreement.
Very important project
Even the most skillfully constructed building requires regular maintenance and, perhaps, an eventual rehab to preserve it for future generations. So it goes with your construction company’s succession plan.
As mentioned, the earlier you embark on putting together the framework and building out all the key features, the easier time you’ll have completing this very important project. We can assist you in addressing the tax and financial issues involved.
© 2023
