Business succession is almost always on the minds of construction company leaders of a certain age, and, at this year’s Associated General Contractors annual convention, a speaker claimed that 90% of construction CEOs will be departing their roles in the next five years. If that’s the case, succession planning should be even more urgently discussed across the industry.
A successful transition can take 10 years or more, so if you want to retire in the next decade, the time to start planning is now.
Here are the five keys to ensuring an orderly succession:
1. Set an overarching goal for the succession process.
The first step to orderly succession is probably the most neglected. The overarching goal doesn't vary much from one company to the next: to achieve long-term success for the company and its people. This includes those exiting and those taking over as well as the employees who are not part of the ownership group.
Your business’s succession plan must also be supported by the strategic plan at your company. A good strategic plan should outline the pathway by which the company achieves the necessary volume, profits and capital to be successful in the future. That may mean moving into new markets, and it definitely means some changes in the organization; if you have outgoing teams moving into new markets, those people have to be replaced. If your plan calls for growth, you’ll have to also plan for new positions and when to add them.
2. Craft a plan that meets the outgoing leader’s needs.
Ultimately, the outgoing owner or leader wants to live happily ever after in the lifestyle to which they have become accustomed. To do that, it's important they take into account their personal financial plans.
Many folks spend more in retirement—at least in those early years, because they have so many things they want to do and so many places they want to go. Make sure your succession plan timelines are based on conservative assumptions—if you think you’d like to retire in five years but find you may need more time to save money for retirement, consider extending that timeline.
Another aspect that needs conservative modeling is the company’s volume and profits, which will support and inform the timeline you set for a succession plan. If you have a pie-in-the-sky, overly optimistic plan for the next decade—for the company and yourself—that serves none of the parties well and may slow down your timeline for succession.
3. Ensure the plan supports the team.
If the plan doesn’t facilitate the company’s team members seeing meaningful returns in the first six months to a year following the leader’s exit, employees may lose heart or jump ship—and the plan falls apart. Such returns can include higher salaries or bonuses, more jobs in the pipeline or improved employee benefits, to name a few.
4. Develop the right leader and leadership team.
Assessing and preparing that team for leadership takes time. Start involving your employees with high leadership potential early on—well before the financial transaction takes place. Get them involved in long-term planning so that once they hold leadership positions, they know what it takes to run the business successfully.