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Exiting your construction business efficiently and with minimal losses requires solid planning. No matter who the future owners are, the path could have some twists and turns if you haven't planned carefully. However, good planning allows you to side-step any issues before they become a problem. Here are some suggestions on how to avoid eight common mistakes made by owners of construction companies when exiting a company.
Owners often fall into the daily grind and put off what seems like non-urgent business matters. The end comes faster than you might expect, and between planning and implementation, you'll need three to five years to exit your construction company, so start planning as soon as possible. Be sure you develop a solid realistic growth plan and formally document the process to increase business value. This allows you to maximize the business' ongoing financial health and transferable value, showing the company's success is independent of the owner.
One important question to ask yourself is once you have sold, can you live comfortably? As you prepare for exit, get a valuation of the company to understand what you will gain from selling the company, then weigh it against your post-exit expenses. This gives you a solid baseline to set the business’ goals before leaving and gives you options when you sell.
Lowering costs and maximizing cash flow increase the company's value, but there are other options beyond increasing productivity and improving efficiency to increase the company’s value. A current trend is to look into automation or workflow automation to help improve productivity. When looking into these options, be sure to analyze the cost against time savings projections, increases in revenue, and the projected increase in the company’s value.
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Consider obtaining assets to grow your business, such as customer lists, inventory, or equipment, or the purchase of another company. These items could allow you to expand your geographic footprint or just increase the market share that your company can take on in your current area by diversifying or adding new customers or even adding service work to boost your income.
Your key employees help maintain and increase cash flow, sustain customer relationships, and support daily operations. Maintaining your team and finding good help is a challenge, but key employees increase your company’s value. This makes them critical to getting the best sale price for your company. Add incentive plans, including non-qualified deferred compensation, bonuses, and/or stock options, to help keep them motivated and happy.
This means making sure your open jobs and contracts are met or reassigned. The sale/transfer transaction needs to happen when it's financially feasible for both yourself and your company's new owner. With the many moving parts that have to be in place to make it work, your plan should protect your assets and account for the ability to keep liquidity up through the transfer process. Keep impacts on any surety, banking, or credit agreements as the main focus.
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To reduce the liabilities in ownership transfer, tax planning needs to happen carefully and as a continuous process. In family transfers, leveraging opportunities over time and balancing your income, capital gains, and gift and estate taxes can make a big difference. With the tax rate increase on the horizon for high-income people, it's important to use timing to minimize your tax liability by working with a tax and finance professional.
Exit planning is complicated and requires a lot of knowledge. Make sure you're working with a trusted team of advisors who can help you with a range of related issues including determining your company’s value, improving profitability, strategic planning, asset protection, tax minimization, business continuity, and company development.
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