Exit Strategies for Construction Companies

Author, Anne Wright, Surety Relationship Executive, Rancho Mesa Insurance Services, Inc.

For years, I’ve heard various clients explain their plans to ensure both retirement and business continuity as their key people plan to exit the workforce. Depending on the company, some plans have gone well, and others not quite as well. And, some plans are ever evolving. Typically, this process will take a lot of time and thought, and rethinking in order to make sure it is done right.

If are planning your exit strategy and your company works with a surety, please do not wait to bring this to the attention of your agent. Both your agent and surety might be able to provide some valuable insight based on what they have experienced or other resources. Certainly, it is important to bring the surety into the conversation early. Surprises, as we often experience and talk about, are typically not the best way to manage communication.

So, let us visit some thoughts on various options and strategies.

I continue to be very fortunate, in my long career in this industry, to be connected with some really bright people in so many areas that can assist my contractor clients with planning of various types. The thing with continuity planning, though, is that a lot of people do not seem to want to either think about it or take the time to plan for it. It will go so much more smoothly, if they do. With the right plan and the right consultant, a lot of peace of mind can follow.

Often times, for small to medium companies, we have seen plans to hand the company off to the next generation. But how do you do that without a good plan for the transition, considering management, mentoring and, importantly, tax strategies?

We have, of course, seen large companies be purchased by even larger companies. Mergers and acquisitions have been happening for years. Private equity acquisitions continue to be popular. And, ESOPs (employee stock ownership plans) continue to be in the mix.

For some, a visit with their CPA and an attorney might be all they need to lay out a plan, but this should be done well in advance of a formal transition date.

For others, where does one find a good resource to lay out the various options to put the best strategy and plan in place? I am happy to connect you with John Ovrom with Exit Consulting Group and his team to start a conversation and planning process. Or, another option is perhaps you have peers as members of your trade associations who can share their story and experience.

As you consider a retirement or transition strategy, the first thing you will want to have in order is your financial information. Any planning is going to be based on the equity/value of the company, and, strategies for how to buy out an owner over a specific period of time, and who will be taking charge, of what and when, will determine the timeline.  

Before you begin the process, pull together a few items:

• Updated accurate financials

• Valuation of the company by an outside source, such as your CPA

• Organizational charts for management and key positions

• Projections for the financial impacts of working capital and equity of the company

And, decide on the following:

• What compensation do you want to get out of the company and what are your terms?

• Key team for ownership and management

• Timeline to put a plan in place

All of these items will be important tools for your surety when you start these important discussions.

A company is only as good as its management and people, as we all know. Oftentimes, a business owner thinks the day to day business operations would continue in the event of their absence. That said, regardless of whether the plan is to retire and sell the company or something tragic happens, all businesses should know what might happen when the inevitable comes.

I have heard of some companies testing the waters with a mock death, of sorts, where   employees are aware it is only a drill. But the idea is to see how smoothly operations would really run if an unplanned exit should occur. It helps to answer questions like who handles the relationships with key business partners, inside and outside staff, etc.?  Having that peace of mind matters to everyone involved. So, this tool could be used by any business owner, whether that succession/transition is on the horizon today or not.  This may sound a little extreme, but for some, it could prove to be enlightening and assist with any weak links in what a transition plan/exit strategy might involve.

If you have any questions on any of this, feel free to reach out to me at awright@ranchomesa.com, (619) 937-0164, or John Ovrom at jovrom@exitconsultinggroup.com, (619) 202-6888.