Issue 4 of 9: Financial Partners

Construction Ownership Transition Issue 4 of 9: Are Your Financial Partners, including Bank and Surety, Onboard with the Transition?

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Succession: Ownership Transition Issues - Number 4 Financial Partners. Construction is a cash-intensive business. Ownership transitions require even more cash.
  • Engage them very early in the process to understand what they are looking for. Because they see this a lot, they often have great advice for owners making transitions. 
  • Start building the relationships with the management team early.
  • Get a good understanding of the capital and collateral that will be required to be left in the company for the bank, surety, and insurance.  
  • Build these requirements into your financial model of the transition and build some cushion in because things will never go as planned.
  • If a personal guarantee will still be required from the current owner(s) for a period of time, set a value for what that guarantee will be worth for them if they are willing to take that risk at all. This will typically be a percentage for what is guaranteed paid annually.  
  • Depending on the exit strategy, this may or may not be that big of an issue, but the financial partners are one of the major stakeholders in the transition. 

Issue 4 of 9: Financial Partners
Continue building value in your business, yourself and your key team members with a good succession strategy....

Issue 4 of 9: Financial Partners
Continue building value in your business, yourself and your key team members with a good succession strategy....

Four Primary Financing Options
One way or another, there has to be some form of financing for an ownership transition to occur where one or more parties are putting capital at risk.
Ownership Transition and Capital Basic Model
When a contractor goes through an ownership transition, the business itself is the proverbial goose laying the golden egg. Remember the basic math formula for ownership transitions and use this simple calculator as a starting point.
Relationship Tiers and Impact on Outcomes
Relationships form the foundation of every construction business, from customers to key vendors and subcontractors. While all relationships are valuable, their value varies and must be managed accordingly—a task that becomes more complex with growth.