Construction executives must think about and accomplish a magnitude of matters each day, including managing different sites and employees, buying the right tools and materials, dealing with timelines and budgets, working with subcontractors and keeping customers happy.
However, what the average construction executive is typically not worried about is what will happen to the company that he or she worked so hard to build after retirement or death. In order to create a successful succession plan, the first thing to do is to identify goals. Should family members be in charge, or is it better to sell the company to provide financially for a spouse or other family members?
Many construction companies are family-owned businesses, and while those executives may have taught their children the skills needed to actually work on the jobsite, that does not always translate into business acumen or the desire to run a company. Company owners may need to work with family members to get them up to speed on the business. There may be a key employee or manager who is better suited to run the company and is able to buy it or majority interest. Whatever the decision, have “the talk” with family members.
First, does the next generation have the desire to take over the company? If the children are not interested, it is best to know while it’s still early in the planning stages. If several children are interested in remaining with the company, consider which roles each should assume in the company. For instance, one child might receive the owner’s share in the business while another child who prefers not be involved in day-to-day operations could receive assets. Having this frank conversation early helps prevent family disagreements down the road.
After speaking with family members, it is time to get company team members involved, including the CPA, lawyers, financial and insurance advisors, and business consultants. These professionals can help create and implement a succession plan. They can help select a vehicle to transfer assets, such as a family limited partnership or limited liability company, that will allow the owner to start transferring ownership while still involved in the business and to restrict transfer of ownership to certain individuals. The team also can help put a sound financial management plan in place to keep the business financially strong and allow for necessary liquidity to fund retirement or a possible buy-out, such as a buy-sell agreement.
Another aspect of succession planning involves valuing the company. While it may be difficult to set an exact value for the company at death or retirement during the planning stages, it is important to set up a mechanism in advance for determining the value.
For example, appoint an accounting firm with valuation experts in the construction industry to determine the price, or use formulas that consider revenue and other factors. Identifying a valuation mechanism during the planning stage helps set forth expectations of value for all parties involved, and prevents not only hurt feelings among family members, but also the potential for costly litigation.
Now is the time to put succession planning at the top of the to-do list. Not only does it help protect the company owner and family at retirement or death, but it also helps ensure that all of the hard work that has gone into the business will continue.