The baby boom generation starts turning seventy this year. That means many construction business owners are looking toward retirement.
Before they do, it’s critical to have a well-defined succession management plan in place. Otherwise, contractors run the risk of jeopardizing both the business that they’ve built and their plans for retirement.
1. Plan Carefully
Any kind of transitional planning should be done with care, and with deliberation. Even if a contractor is handing over the business to a child or trusted employee, it’s important that everyone involved understands the exact terms of the transfer.
It’s usually a good idea to perform an independent audit so that both the current and future owners have a clear picture of the financial state of the business.
2. Family Matters
If you are passing ownership to more than one sibling or owner, make sure that it is legally clear who is in charge. While collaboration and differences of opinion are a part of any family owned business, there can be only one person in charge who with the final say on business matters.
If a contractor is planning to maintain an active role in the business, make sure that this role has been carefully defined in advance and understood by all parties involved. Otherwise, the contractor runs the risk of damaging both the business and the family.
3. Don’t Drain the Liquidity
One big mistake contractors make when they sell their business or retire is draining all the liquidity from the business to serve as a retirement fund.
Even if a company is strong and has a good reputation, it needs to maintain liquidity to cover expenses. Otherwise, the owners have left is a weakened company.
Instead, current owners should treat their business like an annuity.
Either the new owners may need to borrow money to purchase the business from the current owner and pay back the money like any other business loan, or the new owners may need to pay the current owners in installments.
Another option may be for the current owner to maintain ownership of any property or equipment and charge a negotiated rental fee to the new owners.
4. Involve Your Support Network
In construction, relationships matter. That’s why contractors should talk to their agent, bank representatives, CPA, and anyone else who is a stakeholder in their business. As stakeholders in your business, they will want to be involved with the transfer in order to maintain continuity of the relationship with your business.
They can also provide valuable insights and advice that can help smooth the transition between owners.
Also, if you have regular project owners or general contractors that you work with, let them know what you’re planning. Make sure that they are aware of the changes you are planning and that they are comfortable working with the new management. Otherwise, you may be leaving the new owner without a stable client base.
5. Develop a New Business Plan
Succession planning can also provide new owners with the opportunity to adapt the current business to a changing industry. Business plans should be reviewed and updated, processes and procedures fully vetted and accounting practices and payroll systems upgraded.
If there are concerns about how project funds have been managed, working with a project accounting service can help contractors to assess how funds are handled. This applies to both the back office and on the job site.
All of these steps can help ensure a smooth transition between the current and future owners and guarantee success for the new owners, and a successful retirement for the current owner.
Looking for help? Ox Bonding can provide current and future business owners with a range of services through our contractor credit program.
These can include:
- M. Best A-Rated Surety bonds through a “T-Listed” surety.
- Project Accounting Services to help contractors manage project funds.
- Requisition Cash Advances to ensure that you have the funds you need to make expenses.
- Discounted Payroll Services to automate and manage your payroll.
Ready to take advantage of everything that the Ox Bonding has to offer? Get a free contract bond quote today, or call (877) 55-THE-OX.