Looking to Grow and Expand | Are you thinking far enough ahead?
By BDO Canada LLP
As the owner of a construction company, your primary role is to move the business forward. Currently you drive in the fast lane covering as much distance as possible in the limited amount of time available. Yet, you know that you can’t stay in the fast lane forever — at some point you will run out of gas!
In a recent survey of Canadian CEOs, we determined their current focus is on those actions and strategies required to secure the long-term success of their business. However, only 25 per cent have taken steps to secure the ultimate strategic direction — the transition of their business.
Demographics indicate that 40 per cent of today’s business owners plan to exit within five years, rising to over 70 per cent within 10 years. Others will undoubtedly experience an involuntary exit as a result of death, disability, or disagreement. Philip Boyd, 65, is feeling pressure from his family to retire. However, Philip has a great vision for the future of his construction business, and there are many things he still wants to accomplish. He is not
ready to plan hs exit.
How and when to transition a business is a choice every business owner should have. By not planning ahead, Philip is actually reducing the likelihood that he’ll have that choice. If Philip truly wants to achieve his vision, he needs to consider what’s required to ensure his goals can still be met even if he’s not able to lead the charge. One day Philip will sell — either voluntarily or involuntarily — when reduced profitability, fading health, death, or other external factors drive his decision. He has to choose one or the other. Philip needs to be proactive in ensuring he has the choice to sell voluntarily. He then has to decidewhom he will sell to. Again, he only has two choices: sell internally — someone inside the family or business — or sell externally. There are steps Philip should take ahead of time to maximize his choice in buyers.
The good news is that planning for an internal sale also enables the choice to sell externally. For example, preparing for an internal sale involves building a management team that can carry the torch beyond Philip’s tenure. While Philip’s grooming a prospective successor for a possible internal sale, he is also enhancing a key driver for a viable external sale. This gives him more control over the timing of an external sale and ensures he can avoid selling during a buyer’s market.
Preparing for a voluntary sale When it comes to preparing for your inevitable sale, the objective is to build a system that eventually sees the day-today decision-making pass from you to one or more persons within your business. The approach is to create a management group that could successfully carry the business should something happen to you. This may take years to accomplish but it is critical to enabling an internal sale. You should begin by imagining yourself out of the picture. How would the business function? What needs to be done to ensure it can function? How long will that take? What are the priorities? We refer to this process as “professionalizing the business” and it incorporates the following steps:
- Identify the most important factor regarding the future direction of your business.
- Share that vision with members of your family and management team to define a focus or common interest in moving forward (we recommend you involve this group in developing a concrete plan to achieve your common interest).
- Look at your business from the viewpoint of a prospective buyer. Since you know all the soft points, you can identify changes needed in order to increase the value of the business.
- Examine your own role and identify areas that do not utilize your core strengths. Match these functions to people who would be energized by working in those areas. This begins the process of ensuring the business can function well without you.
- Assign the authority and accountability to go along with each of the responsibilities awarded.
- Create a mentoring plan to increase the skill sets of the management team, and groom prospective successors.
- See how the system runs without you by taking longer vacations. If you are reluctant to take an extended vacation, chances are the business is not yet ready for sale.
- Work with your accountant and lawyer to ensure the tax structures are best for your objectives.
- Ensure the stakeholders are engaged by building an advisory board.It is important to recognize that this transition is a long-term objective rather than a short-term goal. It is a future-focused process for creating an investment that is attractive to buyers from both inside and outside the business.
For assistance in ensuring a successful long-term future for your organization, contact a representative from a local BDO office.
Kamloops (250) 372-9505 - firstname.lastname@example.org
Kelowna (250) 763-6700 - email@example.com
Vernon (250) 545-2136 - firstname.lastname@example.org
This article first appeared in the Fall 2016 issue of SICA's Construction Review Magazine. To read the entire magazine click here.
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