Owning and operating a construction company requires managing many moving parts, between different crews, projects, logistical needs and your back-office processes, it can be a lot to juggle. With all of the responsibilities on the owner’s plate, it can be easy to focus attention on the day-to-day activities and not plan for the future. One key future need that can be overlooked until it’s dire is a succession plan for ownership and leadership.
Succession planning ensures that your company’s operations can continue running smoothly after the next generation takes their seats on the leadership team. Developing and implementing a solid succession plan doesn’t happen overnight. When our team works with our construction clients on succession planning there are several important considerations we outline to ensure a feasible plan is created.
The first key to developing a solid plan is time. One of the biggest errors we often see in succession planning is starting the process when the current owners are ready to retire. At this point, the options for replacements are more limited and the company’s value might be negatively impacted. Thinking ahead (10 years out is not too early) is important to create a successful plan, maximize value, lock in key people, and ensure the ability to pivot with changing market conditions.
Other key considerations for succession planning:
- What are the goals and motivations of the existing owners? Are their motivations aligned?
- What are the key roles the company must have filled to perpetuate the business?
- Who are the key people today and where do we need to make key future hires?
- What are the strengths and soft spots of our key people today that we need to enhance to properly prepare them?
- Do we have key leaders that we know will not transition well as part of the succession plan?
- What is the value of the company? Will forecasted cash flows sustain existing operations from the targeted value existing owners are seeking?
- How will the transition of ownership be structured, and funded?
With time and addressing these questions, you can establish a timeline, create, and present a plan to your key people and organization, to drive clarity. You can also begin to proactively work with your financial institutions to bring in support for future funding needs, make sure your lenders and surety providers understand the organization’s plans to avoid issues with those partners and ensure you transfer risk along with the transition of ownership.
At BerganKDV, we have a team that specializes in partnering with clients in the construction industry. We assist clients with their unique challenges, from accounting to business advisory, so that they can focus on running their core operations. If you have additional questions on how to best develop and execute a succession plan at your company, we would be happy to assist. Let’s talk about what a robust succession plan can do for your construction operation.