Better Roads Digital Magazine
Issue link: https://read.dmtmag.com/i/115354
FinancialDistrict future, holds exit options open and, locks in the next generation. The owner's slow exit also provides stability for the organization, less financial strain on the company and, hopefully, a positive mentor for the next generation's leaders.The disadvantages of this structure include the retention of business risk and the possible under-motivation of the next generation. This structure could be perceived positively or negatively by the next generation. A negative perception could result from the possible delay and uncertainty in gaining control of I have a formal plan in place to ensure continuity of operations in the event of my death: • Ineffective or nonexistent recruiting, development and succession planning It is unlikely that the talent that left the industry during the recession will return. Demographics are still a critical issue as the baby-boomer generation transitions out of senior roles in droves, leaving gaps that cannot be filled by the next generation. Finally, the recession has forced many companies to cut back on anything discretionary associated with talent development, which has had a major impact on recruiting, employee development and succession planning. My ownership transfer plans are as follows: 19% Sell/gift to family members 17% Sell to employees 37% No Yes the business. The next generation also may not look favorably upon sharing income with a less active, or exiting, owner. If structured fairly, the positive should be in the opportunity for increased ownership and leadership. The primary key to this strategy's success is developing and motivating the next generation. Prior to our long national recession, finding top, next-generation talent was already one of the greatest challenges facing leaders. This situation was likened to a "perfect storm" for the construction industry because of three factors that would transform the competitive landscape: • Industry image • Changing workforce demographics Sell to both family members/employees Sell to a third party Liquidate 16% 10% 4% FMI expects more engineering and construction business owners to adopt the lingering transition strategy. Our advice for this strategy is as follows: 1. Objectively plan the financial side of your retirement. a)Prepare a personal financial statement and make projections for your retirement income needs and desired personal balance sheet. b)Evaluate the risk you retain in the business. How long will you sign bonds if you are required to do so? What limits can you put on your indemnities? Open-ended personal signatures should be avoided. 2. Take care of your next generation of leaders. Without them, this strategy may not work. a)Make the deal good for the next generation. b)Empower the next generation to do their jobs, while monitoring your risk. c) Commit to leader development strategies including educational opportunities, peer/association affiliations, management planning and personal time with them in running the business. 3. Have a sustainable transaction strategy. a)The structure for your sale should be a template for the next generation's future sale. b)Put in place a buyer/seller or stockholders agreement that is in the mutual best interest of selling and next-generation shareholders while being protective of the company as well. 4. Make your lingering a positive for the company. a)Transition your responsibilities appropriately. b)Be supportive of the development of the next generation. c)Earn your returns on personal contributions and capital invested. As economic and political volatility continues to impact construction markets, the "lingering ownership transfer" will be a common occurrence. It takes a significant amount of time to plan and make decisions, but it takes longer to implement the plan for a smooth transition. If the transition is internal, the most likely choice for the majority of owners, you will need to select and prepare the future leaders. Bottom line: Start now. Brian Moore is a principal with FMI Corp. focused on consulting with contractors and construction materials producers on strategic, organizational and operational issues. Contact at (919) 785-9269 or bmoore@fminet.com. Better Roads March 2013 23