FMI’s Investment Banking Group has assisted thousands of contractors in planning and executing the transfer of their businesses. While each of these transactions is different, the fundamental tenets of ownership transfer and succession planning remain the same. Whether a company is contemplating an immediate internal sale of the shares of its construction business, or has the luxury to plan orderly for such succession, these tenets can be helpful to avoid the pitfalls that have tested others.
Here is a broad treatment of important issues to consider:
- Align future ownership with future management responsibility. The most successful internal sales occur to those individuals who have a meaningful and direct impact on the day to day operations and profitability of the firm.
- Shared leadership and business philosophies lead to successful outcomes. Ensure that future owners and leaders of the firm are in agreement with current ownership on key issues, such as operating objectives, a shared focus on similar key financial metrics, and culture/people management.
- Prepare for the unexpected. Just like in a construction project, internal sale plans invariably encounter unanticipated bumps in the road, both bad and good.
- Profitability is essential. If a company is profitable, almost any internal transfer technique will work.
- Approach strategic initiatives involving the use of capital cautiously. Before any transition begins, ensure that all key participants in the business agree to the long-term strategy, and that the strategic objectives can be accommodated in conjunction with the adopted ownership transfer plan.
- The earnings capability of the business and the owner’s time frame for exit drive the value Stay grounded in reality and manage expectations accordingly.
Internal sales to key employees or family require hard work and can be time consuming. However, they prove to be a rewarding alternative for many construction companies. With the condition of the current construction economy, planning for and developing an internal ownership transfer plan is a more important alternative than ever.
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