Sooner or later, every construction company owner must relinquish control of his or her business. If you don't want to sell your business to an outside party, your successor, ideally, will be someone you trust and believe in. So how do you attain this ideal? Take it step by step and stick to the basics of savvy succession planning.
Who will it be?
The key operational issue addressed in any succession plan is: Who will one day lead the enterprise? If yours is a family-owned company, finding a successor can be difficult. Family members may be qualified but have no interest in taking the reins. Or they may want to be involved but not have sufficient experience.
To deal with issues such as these, you must take time to encourage and develop future leaders. Early on, identify children, other family members or key employees who you believe hold leadership potential and expose them to all aspects of running the business.
Give them a well-defined path to follow. And create an environment in which they're assured that their hard work and time spent learning how to run the business will be rewarded with a leadership role and ownership interests — at a clearly defined point in the future.
Finally, establish appropriate fringe benefit and deferred compensation plans, as well as incentive pay, to help retain them until you step down.
How to divvy it up?
It's important that you encourage the entire family, whether or not they're active in the business, to participate in the planning process and to understand the financial and personal consequences of an unsuccessful succession.
A common issue is how to equitably divide assets among heirs when only some of them will have control of or receive ownership interests in the business. If there are sufficient liquid assets, you can purchase life insurance to provide for any children who won't be involved in the business and give ownership interests only to those who will be involved. Or, consider establishing a family trust to own and operate the business, so that the entire family shares the risks and benefits.
What else?
No matter whom you choose as your successor, you should involve your accountant, lawyer, insurance advisor and family business consultant. These experts can help you assess your circumstances and create a plan that accomplishes a variety of important goals.
For starters, you need to create a management structure that will survive your departure. You also need to put the business on sound financial footing while ensuring adequate liquidity to fund your retirement or a buyout.
A buy-sell agreement is also critical in restricting transfers of ownership interests. Last, but certainly not least, you must implement measures to minimize income and estate taxes.
Meeting these goals can be a juggling act. But without a clear succession plan, all the balls that you've juggled over the years to build a successful construction business can quickly fall to the ground.
What will your new role be?
Passing the baton of ownership and control of your company may be one of the most difficult challenges you'll ever face. But you need to prepare yourself for the day you're no longer in charge.
Even if you stay involved with the business after you retire, find a new role for yourself, such as mentoring young employees or assisting with marketing efforts. This will allow the new leader to truly be seen as the "boss" and to make the big decisions.
Why not start now?
Succession planning may seem like a distraction from your day-to-day worries and work as a construction business owner. But it can serve as a good strategic planning exercise in looking at the future of your company and its key role players. Why not get started now in charting the course ahead?
