Construction company owners are great at completing projects, but many struggle to properly build a succession plan. Even if your retirement is decades away, it’s never too early to start.
In fact, by initiating the process early, you can take stronger actions to cultivate your leadership team, ensure internal processes are sound and enhance the value of the business. All these things will help position your construction company for a successful internal transition or make it more attractive to outside buyers.
A strong succession plan should cover everything from decisively naming a successor to choosing the right method for shifting ownership. Whether you’re just starting or already deep in the process, here are some key considerations.
Ask the tough questions
To develop a framework for your succession plan, you must first ask critical questions such as:
- When do you plan to retire or step away from daily operations?
- What’s the current estimated value of your construction business?
- Who are your possible successors?
- Does someone in your leadership team have the desire and ability to buy and run the company?
- What external parties might be interested in buying the business?
- Is a merger a potential exit strategy?
- What type of transition can you realistically afford?
If yours is a family-owned construction business, you’ll also need to determine whether there are special issues that you’ll need to address, such as how to integrate your succession plan with your estate plan.
These questions aren’t easy to answer. An ownership transition is a collaborative process that can take years to prepare for and execute. Your plan should establish a realistic timeline for evaluation, preparation and implementation — and it should include incremental milestones.
Choose and prepare next-gen leaders
People are your construction company’s greatest asset. A workforce of highly trained and engaged employees — as well as a tight-knit, functional leadership team — are critical to any ownership transition. The good news is that a solid succession plan can be a powerful employee retention tool. When everyone knows you’re strategizing to keep the business in capable hands after you leave, they’ll be more likely to stick around and work hard for its success.
Draw up a list of top candidates for the next-generation owner by identifying your construction company’s true leaders. (They’re not always in management.) When you’re ready, establish a formal plan for coaching your successor and other future executives to transfer knowledge to them. Training can include industry certification courses, leadership workshops and business management classes, as well as day-to-day mentoring and job shadowing.
Revisit or relaunch your business plan
A smooth transition will require that everyone on staff is on board with the eventual ownership change. To get a handle on who can fulfill the mission (purpose) and vision (direction) of your construction company, revisit or even recreate your business plan.
After all, a business plan is essentially a baseline for establishing strategic objectives, monitoring progress and keeping the company on track. The targets laid out in the plan should serve as performance goals that you regularly review to determine whether you’re making adequate progress — or if perhaps new objectives are needed to accommodate a changing building market in your area. The plan also should define the responsibilities of each executive and manager.
Get and keep your finances in order
As mentioned, one of the questions you’ll need to ask repeatedly as you near your exit is: How much is my company worth right now? You should engage a qualified appraiser, ideally with experience in the construction industry, to conduct this analysis as necessary to set up a succession plan, keep it updated and eventually execute it.
An appraiser — along with your successor, potential buyers and other stakeholders (such as banks, lenders and sureties) — will want to see credibly prepared financial statements and tax returns. Keeping accurate and reliable financial records will provide a transparent view of your construction company’s historical performance, current fiscal position and other key data points.
In addition, clearly outline your goals for retirement. That is, do you want to retire outright or more gradually, perhaps by keeping a seat on the board of directors? Explore your options for transferring ownership of the company — whether through a business sale, gifts of stock, a buy-sell agreement (if you have co-owners), a trust or some other way.
At the same time, address retirement and estate planning. More specifically, determine how the succession plan can help fund your golden years and preserve wealth for family or other heirs.
Involve trusted advisors
If creating a succession plan seems overwhelming, know that it doesn’t have to be. An advisory team of outside professionals can guide you through the process, be there if you have questions or encounter conflicts, and help you carry out the plan when ready. We’d love to play a role on just such a team for you. Contact our firm for assistance with any tax or financial planning needs you might have in relation to your succession plan.