Lupberger: How Remodelers Can Take Control of The Future

by Patrick OToole

I have posted this idea earlier – everyone will exit their business at some point! It is inevitable! And most companies with no exit plan in place will simply close their doors either upon retirement or possibly sooner if the owner is incapacitated and cannot return to work.

This blog post is not just for those thinking about retirement. It is for any contractor with a profitable and growing business. I am suggesting that even with a potential retirement 20-years in the future, that you also plan for the unexpected so that if the unexpected happens, you are prepared. The true end-goal here is to remove yourself from day-to-day operations to begin to create a business that is as profitable without you as it is with you! With the appropriate planning, you can create a company with transferable value that can generate several hundred thousand dollars in potential income!

Here is an interesting fact from the Business Equity Institute in Denver, Colorado. According to a 2016 BEI survey, 79 percent of business owners want to exit their businesses within the next 10 years. However, that same survey showed that only 22 percent of business owners had had a conversation about their exits with an advisor. Fewer still, 15 percent, had an exit or transition plan submitted in writing.

So, how does this work?  You have experience with this. You are already doing this with your construction clientele! Compare the idea above to creating a planned design for one of your construction clients. The design development process includes most if not all the following steps:

  • Meeting with the clients
  • Comprehensive needs analysis interview
  • Jobsite measurements
  • Preparing conceptual drawings
  • Meeting with clients again
  • Extensive design/floor-plan consultations
  • Meeting with subs to optimize the design
  • Revisions as needed to the floor plan
  • Preparing 1/4” drawings
  • Elevations/perspectives
  • Meeting with clients again
  • Blueprinting costs
  • Copies
  • Telephone expenses

Can you plan for the future of your company in the same way? There are 4 exit choices:

  • Transfer to Insiders (co-owners or employees)
  • Transfer to children
  • Sale to a 3rd Party
  • Employee Stock Ownership Plan (ESOP)

What is the “design” of a strategic business transition plan? Here is a sample overview:

  • Discovery:
    • Identifying a flexible transition date
    • Identifying a potential successor(s)
    • An owner’s goal to remove themselves from day-to-day operations
  • Identifying a flexible transition date:
    • Just like a construction schedule, this date is subject to change
    • Focus on short-term goals:
      • 1 year at a time
      • 90-day metrics – are you reaching your annual goal?
  • Implementing company revenue value-drivers:
    • A realistic growth strategy
    • Effective financial controls
    • Stable and increasing cash flow
    • A solid, diversified customer base
    • A stable, motivated management team
    • Business systems that improve the sustainability of cash flows
  • Employee overview;
    • Identifying your management team
    • Incentivize key employees to grow your business!
      • Four key elements:
        • Employees know, in advance and in writing, what standards need to be met to receive the incentive compensation
        • The monetary incentive is substantial enough to motivate employees
        • Employees are motivated to stay with the company in the short term as well as (and more importantly) after you have left
        • Employees earn the incentive bonus based on performance standard, that, when attained, increases the value of your business.
  • Effective financial controls:
    • Access to accurate financial statements (P&L, Balance sheets)
    • Company structure, ownership, and governance documentation
    • A documented company continuity plan in case of owner injury or death
    • A current company valuation report
  • Life after the business transition:
    • Assuming a company advisor role
    • Life and retirement objectives
    • Additional personal goals:
      • Charitable/Community objectives
      • Legacy objectives
  • Operational Analysis:
    • Owner management review
    • Owner day-to-day delegation in each area below:
      • Sales
      • Marketing
      • Production
      • Accounting
      • Information technology
      • Daily office administration

There are numerous moving parts here. A good transition or succession plan can take 8 to 10 years to implement. You can see why due to the number of concerns that need to be addressed. The key point is this – done correctly, this proactive planning can save you several hundred thousand dollars! This transition planning, even with your potential retirement years in the future will generate a nice financial reward. It is your business, your legacy, and your opportunity to reward key employees.

Take an exit readiness assessment:

The assessment consists of 22 multiple choice questions, questionnaire which will take you only 15 minutes to complete and requires no confidential information. A 12-page summary report will be emailed to you upon completion. Please click this link to complete the exit readiness questionnaire: https://www.exitmap.com/contractorexitstrategy/.

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