The construction industry is confronting a huge demographic shift in firm leadership and ownership. Baby Boomer owners are retiring, and they are looking to cash-in on their ownership positions and turn over their management responsibilities to the next generation of leaders. Construction trade industry publications are increasingly discussing the need for developing and adopting ownership transfer and succession plan strategies.
The importance of planning is summed up in the adage: “Failing to plan is planning to fail.” Failure to plan can have disastrous results, including financial losses, unanticipated taxes, and, even, business failure.
At Hill & Wilkinson, we have seen two of our big competitors without succession plans fail to make successful transitions. One of the firms had to declare bankruptcy, and employees who saw that the ship was sinking began to leave. One family-owned firm failed because the father tried to give the firm to the son, but the son was incapable of leading the business. That firm was about a $300 MM firm that failed. So much is at stake in failing to plan.
The construction business is not unlike many other privately-held businesses, such as law firms, architectural firms, and thriving restaurants where there are no more than one or two key players at the top. Ownership is typically concentrated, often with family members.
Unlike other services companies, the construction business can have its own set of challenges, such as bonding, which may impact any succession plan. Bonding companies want to understand a company’s short and long term business plan in order to continue to underwrite their projects. The bonding issue can be especially important for those companies that have reached a sustainable, critical size.
The benefits of having a succession plan are numerous. Employees want to know what is going to happen in the future. Customers and vendors want a sense of security. At Hill & Wilkinson, we have used our succession planning as a positive and competitive advantage.