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. 

Succession
Continue building value in your business, yourself and your key team members with a good succession strategy....

Succession
Continue building value in your business, yourself and your key team members with a good succession strategy....

Changes - Impacts Beyond the Direct Costs
Contractors don't typically see the full negative impact of changes and, therefore, don’t put the right level of resources into their management.
Aligning Your Team
Nothing will have a bigger impact on a contractor’s business than having the right people on the team and having that team all aligned around a common vision.
Definitions for The Business of Building
Building a project requires knowledge and skill in using thousands of construction specific definitions, acronyms, and metrics. Building a business including the development of people has its own vocabulary that forms the foundation of communication.