If there is any profession that appreciates the importance of planning, it is general contractors. When so many moving parts need to come together at the right time for a construction project to be completed on time and on budget, planning and communication are the foundation of success.<\/p>\n
Unfortunately, too often general contractors\u2014like many other small-business owners in other fields\u2014do not apply the same rigor to planning for the future of their own businesses as they do when planning for clients\u2019 projects. Failure to plan for the future can have serious financial and emotional consequences for the business owner, the owner\u2019s family, and the business.<\/p>\n
Succession planning is the process of creating a plan for how the business will transition to the next generation of leaders. Regardless of whether the transition is triggered by the owner\u2019s retirement or by some involuntary event such as death or disability, succession is inevitable.<\/p>\n
If done properly, succession planning can provide powerful benefits for business owners, their families, their partners, and the company\u2019s employees. It can help ensure that the business continues thriving after the founder or current owner is no longer involved in the company and facilitate a smooth transition to the next generation of leaders.<\/p>\n
From a financial perspective, succession planning is essential for maximizing the value of the company and the amount of wealth that owners can pass on to their heirs. It also gives the owner a thoughtful and organized way to cash out of the business when the time is right. This last point is especially important for capital-intensive businesses like general contractors and others in the construction industry.<\/p>\n
Anyone who has ever run a business knows how easy it is to let the day-to-day operations distract you from thinking about long-term goals. Many business owners have good intentions about succession planning, but it often gets put on the back burner when the demands of winning new clients and delivering for existing ones swallow up all of the owner\u2019s time and energy.<\/p>\n
As a result, succession \u201cplanning\u201d often does not occur until it is too late to do it effectively. One of the most important elements of a succession plan is establishing a value for what the business is worth. With many small businesses, the vast majority of the company\u2019s value is represented by the owner\u2019s expertise, relationships, and reputation. If a business waits to establish its value until a few years before the owner wants to retire\u2014or worse, after the owner has died or become disabled\u2014it will be significantly discounted because of the owner\u2019s pending (or recent) departure.<\/p>\n
Succession planning does not just protect the owner\u2019s financial interests, it can also provide valuable peace of mind. In the case of a company that does not have a succession plan in place and experiences the death or disability of the owner, family members and business partners are forced to deal with some very difficult decisions at the worst possible time. Succession planning helps to alleviate this burden.<\/p>\n
The earlier a company plans for the future, the better. The best time is when all of the important players are still involved in the business and it is growing. The earlier an owner starts thinking about succession planning, the more options he and his advisors have to tailor the plan around the owner\u2019s goals for retirement, wealth transfer, and the company\u2019s sustained success.<\/p>\n
Going through the valuation process helps the owner understand, not only what the business is worth now, but also the factors driving the growth of the business (value drivers). In some industries, valuations are based primarily on operating profits; in other industries, year-over-year revenue growth or percent of revenue that comes from recurring clients are more important. Understanding what these value drivers are early in the business\u2019s life gives the owner more time to build a business that will be valued highly by future owners.<\/p>\n
Knowing how much the business is worth\u2014and what it might be worth 10, 20, or 30 years down the road\u2014also allows the owner to plan for retirement and transfer wealth to family members in a tax-efficient way. In most cases, the business accounts for the vast majority of the owner\u2019s net worth and cash flow. It is impossible to properly plan for retirement and wealth transfer if the owner does not know what the business is worth.<\/p>\n
Most business owners want to see their company prosper long after they are gone and provide a source of income for heirs\u2014as well as steady employment for current employees. This does not happen by accident, however; the owner must be willing to invest time and energy into grooming the next generation of business leaders.<\/p>\n
The Green Bay Packers are a good example of an organization that understands the importance of succession planning. In 2005, the Packers used their first-round draft pick to select Aaron Rodgers, even though the team already had future Hall-of-Famer Brett Favre as their quarterback. The ultra-talented Rodgers had to play the role of understudy for 3 seasons, but he eventually replaced Favre in 2008 and has led the Packers to the playoffs in 6 of the last 7 seasons.<\/p>\n
Preparing the next generation of leaders takes more than just time, energy, and good intentions. Identifying the right people to take over the business and training them may require skills the owner does not have. That is why many successful businesses work with outside advisors who specialize in guiding companies through these transitions.<\/p>\n
Having a formal succession plan in place can be very helpful in attracting highly driven and talented people who can one day succeed the current owner. The opportunity to purchase equity in the business\u2014and a structured plan for buying into the business\u2014are great ways to give younger executives a vested interest in the company\u2019s long-term growth.<\/p>\n
While the issues described above apply to all small and mid-sized businesses, family businesses face a unique set of challenges related to succession planning. This is especially true when there are multiple children and not all of the siblings will be equally involved in running the business.<\/p>\n
Andrew Keyt, Executive Director of the Family Business Center of Loyola University Chicago, says that two-thirds of family businesses do not survive past the current generation and that 60% of family business failures are the result of poor communication, rather than business or financial problems. \u201cWhen it comes to succession planning for family businesses, communication is the name of the game,\u201d Keyt says.<\/p>\n
He says it is extremely important for family businesses to not only have a plan for passing the business to the next generation, but also to make sure the plan is well communicated across the family and the company. Family businesses should have regular family meetings and a strong board of directors that includes trusted advisors from outside the family.<\/p>\n
\u201cIt is important to remember that succession planning isn\u2019t an event, it\u2019s a process,\u201d Keyt said.<\/p>\n
General contractors and other business owners pour an amazing amount of blood, sweat, and tears into building their companies. Too often, however, planning for the company\u2019s future does not occur until it\u2019s too late to do it effectively.<\/p>\n
Creating a succession plan is certainly an investment of time, energy, and resources. But it is an investment that pays tremendous dividends for the owner, the owner\u2019s family, and the company\u2019s employees. By creating a blueprint for the transition to the next generation of leaders, business owners\u00a0can create something that is built to last.<\/p>\n
Succession is inevitable. But too often succession planning happens when it is too late to do it effectively.<\/p>\n
Like any major project, creating a strong succession plan is the result of several well-coordinated steps:<\/p>\n
What business owners need to know about building a company—and wealth—that lasts well beyond their retirement.<\/p>\n","protected":false},"author":[207],"featured_media":0,"template":"","categories":[],"class_list":["post-10262","articles","type-articles","status-publish","hentry","author-allan-goldstein"],"acf":[],"yoast_head":"\n