Sunday, December 14, 2008
Many contractors are owned and operated by one key individual, the owner. Further, usually the vast majority of the owner’s net worth is tied up in the stock of the company he or she owns. It is imperative, for many reasons some of which I’ll outline here, for every contractor to have an operational succession plan in place to ensure fluid continuity of the business operations.
Let’s say for example that Jane Contractor employs 150 people between the field and the office. On average, for every employee I would suggest that another 1.5 people are dependent/affected by that employee’s livelihood within Jane Contractor’s company. Some employees are married, some aren’t, some have kids, while others don’t. So I’m suggesting that, including the employee, for each person employed perhaps 2.5 total people are affected by the success of Jane Contractor’s business. That’s a total of 375 people dependent on whether Jane Contractor has a plan in place to ensure the continuity of business whether Jane, the primary driver of success in the company, shows up to work or not. There are many business reasons to have an operational succession plan, but perhaps none more important than the financial security of all of the construction companies employees and their dependents. Most, if not all, of the owners I know are great and compassionate people and this issue might be the highest priority. The knowledge that their own families, their employees and the families of their employees, will be able to have a secure financial future should something happen to the “Top Dog” should be a primary driver in the desire to develop an operational succession plan.
Management should prepare an operational succession plan to also serve as an “insurance policy” which can be shown to creditors. Surety companies and banks are generally two very interested parties wishing to ensure that a construction company can perform on its backlog without total reliance on the Owner/President being involved. I’ve witnessed countless times where a bond company requests a succession plan document only to be met with either lack of a meaningful response, “we’ll get it to you”, “it’s in process”, etc. One main concept that usually occurs to me is that the bond company, bank, etc. are only asking for items the contractor should want to have for his/her own purposes in managing the company and ensuring its success more than anyone else! The bond company is not asking for this document to be a pain in the neck, they just wants reasonable assurance (a written plan) that management has a strategy for performing on its backlog in case of unforeseen circumstances. The bond company’s goals are not inconsistent with what the contractor should want/need for him or herself. If Joe Contractor asks a bond company to vouch for him and his construction company that he has the necessary components in his business (relevant experience, capital, personnel, capacity, etc.) to successfully perform the work, Joe Contractor should ensure he has all the pieces in place to back up that promise to perform on the backlog including a contingency plan in case he isn’t able to show up to work for whatever reason.
Another benefit to the creation of an Operational Succession Plan is that it requires the contractor to think about his or her replacements, as well as replacements for them as they vacate their positions. Further, it calls for cross training those individuals now and actually provides for the beginnings of a natural (not getting hit by a truck, etc.) succession plan. Many contractors think about how to get into the business and build the business, but few think about how they will get out of it. For many contractors a viable exit is to sell to the next level of management. Often times that structure necessitates the owner to take back a note (debt) from the new ownership. The chances that the debt will be successfully paid on schedule (or ahead of schedule) are greatly tied to the success of the ongoing business. The new owners/management will fare much better if they are properly trained and groomed for the roles. By having an operational succession plan in place “in case of emergency” you are also building your future possible exit strategy. It is not lost on me that some may think you could be training your future competition, however I am a firm believer that if you create a fair, fun and successful work environment and treat your employees well you will not face that scenario. As long as those future stars have the knowledge that “your” business will someday be “their” business or in the event of sale or other windfall they will share equitably, they most likely will not leave.
It is clear for many reasons the creation of an Operational Succession Plan is an important, fluid document which should be updated as circumstances warrant. There are many important reasons to have the document in place as discussed above. It may seem a daunting task to create such a plan. If you need help getting started we have created a template you can use (and our clients have successfully done so) as a solid starting point, just email me for your copy. I encourage all owners of construction companies to create an operational succession plan to help ensure a bright future for themselves, their employees and all their families. It could be a key component in the perpetuation of the business they worked so hard to start and build.
By Steve Antill, Foundation Software, Inc.
When contractors decide they need new accounting software, the Internet is usually the first place they begin their search. But do a Google search on “construction accounting software” and hundreds of options will appear—accounting software that does estimating; accounting systems that do estimating, accounting, and project management; and project management systems that do estimating and accounting. The construction software industry has reached a point where many vendors are trying to be everything to everyone.
Theoretically, this is ideal. After all, who wouldn’t want a onestop shop for all technology tools? Realistically, though, every construction business is unique, and an all-in-one product may not be flexible enough. An estimating module built into an accounting system, for example, may not work for a specialty trade contractor since the estimating tool is too general. The real question is: When looking to replace an accounting system because it is too generic to meet the
required needs, why consider an all-in-one system that was not designed with the specific business or trade in mind?
Preparation Is Key
So what is the best advice for new technology shoppers? Before taking any other steps, the company should develop a plan and stick to it. The best plans, by the way, are those that include input from all employees who will use the software or who may require information from the system. When shopping for new accounting software, contractors need to prioritize their wish lists. The “must-have” list includes features and functions the company cannot do without. Depending on the company, this list may include American Institute of Architects (AIA) billings, work in process (WIP) reports, certified payrolls, customizable report writers, and so on. Beyond must-have items, shoppers should identify items they could live without and, finally, those they simply do not need.
Companies often overlook functionality when shopping for construction accounting solutions. For example, why purchase an accounting system that includes a built-in, canned estimating module if the estimating module is too generic and may never get implemented? Wouldn’t it make more sense to buy an industry-specific, third-party estimating software product that will integrate with the new accounting system, so the contractor can benefit from the best of both worlds? On top of needing to be prepared for a conversion, companies need to make sure the feature sets of the new system will work for them. Wowed by cool, yet impractical features. Failure to plan. Unrealistic expectations. These are just some of the reasons companies end up with a construction accounting application that offers them limited benefits. Overbuying is something companies often regret, and yet it happens because they get in over their heads and fail to focus on their true needs. It all comes down to one basic purchasing principle: Don’t get sidetracked. Buy only what is really needed and what can realistically be used and implemented.