One of the less-talked-about economic side effects of the COVID-19 pandemic is the number of experienced professionals retiring or shortening their retirement timeline. This opens up opportunities for the next generation to step into their shoes, but it also comes with some challenges. Not having a succession plan in place can create uncertainty and unnecessary struggles for your construction firm’s new owners or leadership team.
Why is a succession plan essential?
Recent research by FMI Corporation shows less than 50% of construction firm owners have a succession plan in place. This is disconcerting because a plan will help protect the value of your business and its ability to provide continuity to existing and new clients. Putting off succession planning can have monetary consequences for both you and your construction firm.
Whether you plan to retire in the next year or not for another five to 10 years, considering your succession plan and putting some steps into action now will help your construction firm’s legacy live on long after you’ve stepped away from day-to-day management.
Building a succession plan
You may be tempted to download the “plug and play” version of a succession plan and fill in the blanks, but that’s a bad idea for your construction firm. Every firm is different, which means other variables come into play, and a one-size-fits-all approach may not be effective. A good succession plan for any construction firm accounts for the following question:
- Who will be involved in creating a succession plan? This should be everyone from senior leaders and owners to key employees and even your successor (once identified).
- What is the timeline for your retirement? Whenever you plan to retire from your construction firm, putting an end date on the plan will help create deadlines and increase the importance of sticking to the plan.
- Who are potential candidates for your successor? Consider looking inside and outside the organization. While key employees may be eager to take over, they may lack the financial clout and capital to complete the takeover of your construction firm.
- Do you have the personal capital to support yourself in retirement? Without regular income coming in from your construction firm, you’re reliant on investments, savings, and Social Security income to cover your expenses in retirement. If you plan to fully retire without working, make sure you have enough assets to cover your expenses long-term.
- Do you have an accurate business valuation? Regularly checking in on your business’ valuation is important during succession planning, as it will allow you to make adjustments based on economic fluctuations that can affect your construction firm’s valuation.
Goals of a good succession plan
The goal of a proper succession plan is to do more than allow you to retire; it’s to protect the company while gradually lessening its reliance on you. A slow transition of control gives your successor the confidence to run the company while learning the ropes. It also creates a buffer to any culture shock clients or key employees may experience with a sudden transition.
Following the above steps to create a succession plan, including timetables and deadlines, will help pave the way for a successful transition without significant decreases in profits for both the exiting owner/manager and the incoming team. If you need help understanding your current business valuation and assets, reach out to our team of professionals today.