Contractor Exit Strategy 2 of 6: Pass Down to Family

This is a very common strategy for contractors and is successful for those with interested family member(s) who are effectively working in leadership roles.

D. Brown Management Profile Picture
Share
Succession: Exit Strategy 2 of 6 - Pass-Down to Family.

The valuation focus for these deals is on tax efficiency and risk management by tightly integrating the transaction with estate planning. The upside is that there are typically solid tax savings with this type of deal.

The typical downsides of these deal structures include:

  • Deal structures that potentially make adding non-family members as equity partners difficult. 
  • The deal structure keeping the incoming owners from feeling the full weight of their capital-at-risk that would typically be felt by a non-family buyer. This is a very underestimated dynamic that often negatively impacts professional development and business performance significantly. 

Other common risks include:

  • Key non-family management team members leaving if they feel they are being passed up, which is why there is a huge burden for family members to be effectively performing in leadership roles prior to succession.
  • Family members being pushed into roles they don’t want to please their parents, which negatively impacts them personally, the business performance, and family dynamics.  
  • Toxic team dynamics created by unclear boundaries between family and business. 

Contractor Exit Strategy 2 of 6: Pass Down to Family
Continue building value in your business, yourself and your key team members with a good succession strategy....

Contractor Exit Strategy 2 of 6: Pass Down to Family
Continue building value in your business, yourself and your key team members with a good succession strategy....

Feedback - Build up, Don't Beat Up
Talent development is often slowed down because people don’t know how to give productive feedback. The skills of giving, receiving and acting upon feedback can be developed.
Lean Principle - Kaizen (Every Detail Matters)
As contractors build their businesses, it is important to look at every detail from the first meeting with a potential customer through winning and building the project. This same attention to detail also applies to supporting operations and talent.
Feeling Safe and Being Safe
These are not the same. Both must be managed. Know which of your actions contribute to each and to what degree. Know that your actions may be interpreted dramatically differently by different people.