Spaghetti Succession Planning
A Recipe for Successfully Transitioning your Construction Business
Whether it’s getting in shape, buying or building a house, taking a vacation, or making spaghetti for supper tonight – these activities all require some planning and preparation. Planning for the future is a significant and inevitable part of life – and the construction and real estate industries are no different. But when it comes to succession planning, business owners often wait until the last minute, try to rush it through, and fail to succeed.
Spaghetti Succession Planning
The American Society of Employers defines succession planning as a process for identifying and developing new leaders who can replace old leaders when they leave, retire or pass away.
Just like your favorite spaghetti recipe may differ from others, every person’s succession plan may look somewhat different. However, succession plans certainly have some common themes. Here are some topics to consider as you plan both your future and the future of your business.
Food for Thought
- Be proactive and define your plan early. Do you plan to retire? When? Do you have a family member who plans to take over the business? Who and are they ready? Do you have an interested outside buyer? The moral of the story here is that you need to start early. If you want to make spaghetti, you need sauce and noodles. If you want to retire in a year, but don’t have a succession plan in place, or a buyer or family member lined up, that’s probably unrealistic. On average, it takes several years to successfully exit a business.
- Valuation. Construction and real estate business owners have filled their days growing and operating their businesses but are often unaware of the value of their successful business. You must know what someone would pay for your spaghetti. In most cases, the value is different than the sum of the parts due to goodwill or “blue sky.” Also, value is often different depending on if the potential buyer is a family member or an outside buyer. Usually, the first step in succession planning is determining the value of the business.
- Family dynamics. Regardless of whether you’re transitioning your construction or real estate company to a family member or outside buyer, family dynamics will be at play. Transitioning a business can truly be emotionally trying for families. Know your stakeholders and get their emotions out on the table earlier rather than later.
- Prepare the next generation. Regardless of who the successor is, it’s going to take time to get them up-to-speed in their leadership, management, and financial abilities, among other characteristics. A combination of coaching, mentoring, shadowing, and training programs may be needed, and that’s not a bad thing! You have to learn some cooking basics before making homemade spaghetti sauce, right? If you spend time growing your next generation of leaders, I bet you’ll be glad you did!
- Stay positive and communicate often. Change is always hard, and acceptance and respect take time to be earned. Keep all stakeholders in the loop as this process unfolds. Strong communication can go a long way in ensuring a successful exit!
- Get the right people on your team. Successful succession planning is consistent and doesn’t start and stop. Having the right advisors on your team helping drive this process is crucial in your success. Proactive succession planning can’t be something you do only when time allows.
It takes time to build a successful construction or real estate business. Successfully exiting your business and transitioning it to the next generation is also going to take time. But with the right recipe in place, you can ensure your wishes are met, your family is taken care of, and your business goes on to succeed in the generations to come! Contact an Adams Brown advisor today!