Business

Succession Plan Successfully for Your Small Construction Business

Succession planning doesn't have to be as dramatic as the fire-stoking HBO series makes it seem.
By Jen L'Estrange
August 23, 2023
Topics
Business

If you’ve seen the show "Succession," then you’ve seen what can happen to a business—especially a family-owned business—when there’s no succession plan in place. But if you think you have to be a Roy running a global conglomerate to start planning for the future of your company, you may want to reconsider.

For most small businesses, including construction and contracting, the succession plan is often overlooked until the owner or a key leader decides that they would like to step out of the organization. Then it becomes a race to figure out who will take the reins, as well as how and when they will do so.

Being proactive rather than reactive will improve the organization’s chances of success and maintain business continuity while protecting the owner’s investment as they exit the business. A good, but perhaps simplified, succession plan for a small business includes goals for knowledge transfer of key business processes, leadership development plans and communication planning. Read on for four key things to keep in mind as you develop your succession plan.

Lead Time Matters

The amount of time you have to plan, prepare and implement a succession plan is the number one limiting factor in what you will be able to accomplish and who you select for leadership. The more time available to prepare someone for a leadership role the greater the likelihood of success. For family businesses, often leaders want to transition to the next generation, but they either don’t know how to start the process or they reach out for help when it’s too late and the result is based on an alternative-approach analysis or contingency plan in case the successor isn’t up to the task.

They say it takes 10,000 hours to be an expert in a particular area or skill set. The same is true for business leadership. Ten-thousand hours is five years and, while there are accelerators and supporting services that help shorten that lead time, implementing a change in control within a calendar year is unlikely. Three years is ideal to prepare for a business owner to identify and develop a successor and exit the business. It can be done in less time, say 12 to 18 months, with the right successor and investment in supporting them during the transition.

Develop Successors, Including Long-Term Talent

When evaluating potential successors for key roles in the organization, consider their knowledge, skills and experience both in terms of tradecraft and business acumen. The outcome of this exercise is a sort of talent balance sheet where you have identified key competencies and development gaps. From there, develop a plan to close the gaps over time—prioritizing on-the-job training and work shadowing key leaders.

From a leadership and people-management perspective, there are opportunities to assess, understand and leverage communication styles and preference, motivators and emotional intelligence. Assessment data can also be used to inform and adjust the development plan over time.

Finally, there is something to be said for playing the long game and building long-term talent. The leaders that eventually emerge will have a greater alignment with your culture and values and have the internal networks in place to be successful.

Cash is King

Most construction company owners plan on using the income from the business to finance their retirement for a number of years after they exit. Sometimes this is done through a lump sum payment and other times it is a series of payments over time. This part of the plan is usually determined by the company CFO or accounting firm but can have an impact on operations and cash flow and, as a result, how new employees are hired into the company shortly after the change in control. The key here is working in tandem with the finance department or vendor partner to ensure that the overall succession plan and resulting organizational and workforce plan is in line with the financial constraints of the business.

In addition, vendor and supplier relationships can be impacted during transition. These relationships and the related credit lines, especially in construction companies, impact the business during a change in control. This is especially important for smaller businesses where the company identity is strongly associated with the current owner. Moreover, if the supply house credit lines are personally guaranteed, this needs to be taken into account in the succession planning and required lead time for implementation.

Family can be Complicated

More often than not, there is some family involvement in trades and construction businesses. Family businesses generally (but not always) have the advantage of retention and loyalty. The downside is the risk that family members are not ready for leadership succession, either resulting in a promotion that isn’t deserved or a family member who feels disenfranchised from both the business and the family unit. Both of these scenarios create employee disengagement and, over time, affect both productivity and profitability.

In a sense, succession planning is simpler in a non-family business. In both cases, the steps are the same, but the order of operations in terms of communication is very different. With family businesses, ensure that family members are informed of succession planning and what it means for them before the rest of the employees are informed, including other members of the leadership team. Think of it like you’re protecting Thanksgiving dinner, because you are.

It’s Easier Than you Think

Stepping away from the business and making room for new leadership in your company can seem daunting at first. But with some lead time, dedicated planning time and appropriate communication, you can and will transition successfully.

by Jen L'Estrange

Jen L’Estrange, the founder and managing director of Red Clover, an outsource HR firm, is fanatical about helping companies clearly define their people strategies and achieve their change goals. She is committed to building a team of uniquely talented HR consultants from diverse backgrounds to provide strategic guidance to the firm’s clients. 

Before founding Red Clover in 2015, L’Estrange worked with Altria, Philip Morris International and Accenture in IT and HR leadership roles where she had the opportunity to live and work in over 10 countries. She is a subject matter expert in financially driven organizational change management and is regularly called on as a speaker on topics related to employee engagement during disruption, values-based talent management, variable compensation strategies for SMEs and leading through change.

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