Exit Planning - Always a Timely Subject
While your primary concern these days may be just surviving the current business cycle, this might actually be a good time to start thinking about the transition to the next generation of owners.

A graceful exit is one of the most challenging tasks you’ll face as a business owner. That’s especially true in the construction industry, where high risk and low margins can make buyers scarce.

Even if you pass on ownership to family members or senior managers, the absence of a market for your business makes it difficult to place an accurate value on the company’s assets. Without this accurate valuation, objective decision-making often gives way to subjective guesswork about how much your equity is worth, and how best to finance the transition to new owners.

The industry’s unique capital structure further complicates exit planning. Lenders and surety companies understandably prefer to see you leave greater equity in the business – at the very time you are trying to take equity out. You’ll need to balance these conflicting priorities while still maintaining crucial financial relationships. That requires clear communication, careful planning, and adequate time for a smooth transition.

You also need time to groom successors. Start by delegating greater responsibilities to potential successors, and mentor young leaders in decision-making. They might make a few not-so-great decisions, but these can become powerful teaching moments.

Review your incentive programs as well. Deferred compensation plans give key employees substantial incentives to stay with the company. A phantom stock plan (a contractual agreement that mimics actual stock ownership) can give employees a vested interest in the company’s success without diluting ownership.

Another option is an Employee Stock Ownership Plan (ESOP), a tax-qualified employee retirement plan that allows you to sell your stock to your employees as you gradually step out of the company. ESOPs carry heavy administrative burdens and other challenges, though, so get qualified professional help and investigate carefully.

So when should you start? Sooner is better. In fact, some say you should start planning how to get out of your company the day you open its doors. At a minimum, allow at least two or three years – longer if you can – to get the business in shape, identify new owners, and get the deal done.

You have much to gain by planning early, and much to lose if you start too late.