Succession Fact #1: Capital and Cash Flow

Succession Fact #1: No deal structure will substantially create capital or cash flow, as only the business operations can do that.

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Succession: Fact 1. Capital and Cash Flow

It is only the business performance that ensures all major stakeholder groups are compensated properly for their time and capital put at risk.  

  • If the deal will only pencil out returns for both parties due to some intricate tax strategy, then the deal probably shouldn’t be done. With that said, invest wisely in your advisors to make the transaction as tax efficient as possible.  
  • It is only in the rare cases of truly strategic sales that the business substantially increases in its ability to make profits and generate free cash flow after the transaction is completed.  
  • Outside of a strategic sale, if the business will substantially increase the trajectory of profit growth and free cash flow, that means that less of the value was created by the current owner. This will result in a lower valuation for the current owner in the transaction to make the simple capital formula work.  

The saddest thing we see during ownership transitions is when the ownership groups and management start to focus more on intricate hypothetical deal models rather than aligning on increasing the true underlying value of the business.


Succession Fact #1: Capital and Cash Flow
Continue building value in your business, yourself and your key team members with a good succession strategy....

Succession Fact #1: Capital and Cash Flow
Continue building value in your business, yourself and your key team members with a good succession strategy....

Growth and Opportunity
Contractors that are growing profitably, have great reputations with their customers, and have a good culture are able to attract and retain the best talent even with the talent shortages the construction industry will face in the next 10+ years.
2024 Contractor 5-Year Growth Rates (ENR Top 400/600 Lists)
"More companies die of indigestion than starvation." - David Packard (Founder of HP). Growth is challenging for all contractors. The decision to grow must be intentional and aligned with strategy and capability. 5-Year growth stats from 2024.
Alignment and Ownership and Creating Value
As a construction company grows, it becomes increasingly important to align everyone on the team. Alignment comes from being transparent with your guiding principles or values and living them every day, starting with ownership.