Passing a Construction Business on to Your Heirs
You’ve decided to keep the construction business in the family, but do business and your family mix?
Your succession may culminate with the stroke of a pen on a contract, but it’s a process that should start years before your planned departure. Do you have a family member in mind to take the reins? If you can see the horizon where you’ll want to move on from the construction business you’ve built, and you’re thinking about giving that business to one of your children, here are some facts you should consider.
The odds are against you
John Ward, co-founder of the Family Business Consulting Group Inc and Clinical Professor at the Kellogg School of Management and author of Keeping the Family Business Healthy: How to Plan for Continuing Growth, Profitability, and Family Leadership, found that less than 66 percent of successful family businesses last a second generation. Just 13 percent survive three generations.
You built the business. You know how it works. Is there a member of your family with that same level of acumen — or even superior acumen?
Choosing a family member as your successor might agree with your heart, but does it make good business sense? The business will fail if your heir or heirs are incapable of running it when you retire. Is your intended successor the right person to meet those challenges?
It’s not just the business that’s at stake, it’s your family’s future. It’s crucial to be objective about the capacity of the person you plan to select as your successor. Consider engaging a consultant or advisor who can help you determine the ability of your heir or heirs to lead.
The next leader
You’re going to have to choose one person to be the next leader of your construction company. Co-presidents or co-CEOs don’t usually work. The choice may be obvious, but you need a fair and equitable plan if there are any questions about the succession. It’s even more a reason to start the process as early as possible.
Give yourself enough time between choosing your successor and your retirement to set them up for success. It takes time to pass on the business-specific knowledge you’ve gained and solidify their place as the next leader of the construction business.
Although leadership is often either innately present or not, we can all learn how to be better leaders. Look for confidence of character if there’s more than one family member candidate. With enough time, you can see how each performs in management positions as they take on deeper responsibilities. This also becomes a way to groom your successor in areas where they need support. You may need to delay the transition if the next leader of your company simply needs more time.
The choice is often easier when you’re confident that your chosen successor demonstrates a growth mindset (Read The Growth Mindset by Stanford Professor Carol Dweck for more info on this subject). You’ll know that the next leader from your family believes their intelligence and wisdom grows with experience. They won’t shy away from challenges because of a fixed mindset.
When it’s time to depart
Even highly successful management teams can stumble when they get mixed signals from their leader. Be clear about when and why you’ll make the leadership transition. Communicate this throughout the organization.
A gradual transition can reduce the possibility of conflict from those who aren’t happy about the succession. This also gives you the opportunity for extended guidance for a period when everyone sees that the current and future leaders are working in partnership.
Get everyone on the same page
Even with the best of intentions, transferring ownership in a closely held family business can run awry. Successful founders assume the next generation will follow suit. Parents assume their adult children will always behave professionally. That’s not always the case.
Smart business owners turn to outside help with these transitions, and that should start years before lawyers are asked to draw up the paperwork. There are many expectations and potential misunderstandings to be addressed. Your heirs must fully understand how ownership and compensation work. Any misplaced sense of entitlement must be resolved. These are the things that can contribute to a family-owned business foundering — rather than prospering — after succession.
If it’s time to plan the succession for your family construction business, contact Goldhill Group for a free strategic assessment. We’ll help you determine how and when to transfer leadership to the right successor.