Family-owned construction businesses often face distinctive challenges when it comes to creating a succession plan. Emotions can run high, and the business owner’s lifelong working legacy may be at stake. Once you’ve chosen a successor, and put a basic succession plan in place, it’s important to respond quickly if trouble starts brewing.
Form your team
Succession problems can be complex to diagnose and solve. A team approach can help. By involving as many pertinent parties as possible, you can get a more complete perspective on addressing problems and finding solutions.
Keeping key individuals informed and part of the process also helps promote support throughout the rest of the transition. Those who should be involved include your chosen successor, members of your board of directors or advisory board, managers, family and key nonfamily employees, shareholders and investors, and professional advisors such as your attorney and accountant.
Although you may have overlooked some of these important constituents during the planning process, it’s never too late to involve them. Express concerns openly while stating your commitment to making the situation right going forward. People typically respond more positively if you’re honest and accountable for your own mistakes.
One common occurrence for many contractors is that, as time goes on, a chosen successor may not show signs that he or she is truly up to the task of running a construction company. Maybe the successor doesn’t have the aptitude for the advanced technical requirements of the job. Or perhaps he or she just isn’t a “people person” and struggles with the sales and public relations aspects of the construction business.
In such cases, consider retaining control of the company while your next-in-line acquires more experience working in various areas of your business and developing skills through training and advanced education. Another strategy is to name an interim CEO. You can step back into an advisory role while the interim CEO keeps your business plans moving forward and your successor gets up to speed.
Ask for help
If, after you take the previous steps, your succession plan is still off track, it may be time to bring in outside assistance. Professional advisors, preferably experienced in the construction industry, have the knowledge and skills necessary to shed objective light on the situation. You could be too close to it, so your judgment may be muddied by emotional bias or family conflicts.
Another common problem for construction companies is that there’s insufficient cash available for the successor (or other family shareholders) to buy out the business owner. For assistance, call your financial and legal advisors. They can help you evaluate and effectively structure funding options, such as:
- Selling business assets or stock,
- Gifting stock,
- Obtaining a bank loan,
- Getting seller financing if your successor can’t qualify for a loan, or
- Using private investment capital.
A family business management consultant can assist by weighing options from both a family and an employee standpoint and devising strategies for addressing potential conflicts. This may include helping to keep peace by giving ownership interests to family workers and different assets to other beneficiaries, such as property and life insurance proceeds.
Be prepared for anything
The last, but potentially necessary, resort is to revisit your successor choice. After getting input from key individuals in your organization, outside advisors, and even customers and suppliers, you may discover you need to find a new leader-to-be.
No one can afford to continue investing in someone who can’t successfully lead the business forward. Your successor may even agree with the decision, choosing to maintain an ownership stake and turn over management responsibility to a more qualified or motivated individual.
Search for a solution
Many family-owned construction companies offer their local communities a unique blend of personality, skills and experience. Passing all this down from one generation to the next is no easy task. As you create and refine your succession plan, be diligent and flexible. The right solution will present itself eventually. If you’re looking for assistance with creating your succession plan, contact us.