This is the second part of a two-part series on succession planning for a contractor, and the process of finding and developing a new leader for a business as the owner nears retirement. If you’re thinking of someday selling a construction company, wondering about the future of your business, or curious about what your retirement could look like, you don’t want to miss today’s interview.
In this video, we’ll discuss what succession planning is, what does it take to sell a business, what has worked really well for my guests, and what would they do differently after going through the succession process.
I’m talking to Tom and Barbara Weiher, the original owners and founders of Carmel Builders in Milwaukee, WI. Carmel Builders successfully transitioned the business from Tom and Barbara to their son, Louis, a few years ago. (You can watch my interview with their son Louis here.)
Tom started the design, build, and remodeling firm 40 years ago. Ten to 15 years ago, he started wondering, “How’s this going to end?” It seemed ideal to him and his wife, Barbara, for one of their five children to take over the business to keep it in the family. But at the time, none of them were working in the business or interested in taking it over.
When their oldest son, Louis, came to work for them, they floated the idea by him, and at first, he wasn’t keen on the idea. He had come on board because they needed a lot of help with accounting, and he had that expertise. After a time, they saw they needed help with sales. When they asked him to take that on, he agreed to grow his role. Slowly, Louis warmed to the idea of buying the business from his folks.
Day to day, they talked openly with Louis about increasing his responsibility and what it might look like to eventually turn the business over to him. They realized, as Tom said, “We need to find somebody who can help us steer through this transition process.”
“It’s an interesting thing when you [go through a succession] with your children because you’re still the parent, but it’s like your child is taking away your baby,” Barbara said. “The issue we did not want to happen was some sort of family rift that would damage our relationships. We didn’t want this to get in the way of that.”
After interviewing three business coaches, they chose a consultant who had expertise in family-owned businesses. In fact, he had a proven family succession planning process with specific steps.
That appealed to them because the consultant could understand the family relationships as well as the strategic planning piece. And he was direct and honest, which they really appreciated. “He didn’t allow us to avoid the touchy, hard questions,” Tom said.
Although you might feel comfortable talking to clients all the time about money and budgets, it’s different when you’re talking about personal subjects like:
- How much money you need to retire?
- How much can the successor afford to pay for the company?
- How much involvement do you want in the business once you retire?
- How would it feel to be told what to do by your child once he or she is CEO?
Getting Finances in Order
It took a full three years from the time they started working with a consultant until the succession was complete. And during that time, they had a lot of work to do to get their house in order. “This takes time. It takes a commitment. And it takes money,” Barbara said. Both Tom and Barbara agree that it was money and time well spent.
They met monthly for two to three hours with the consultant, and a lot of that time was spent on financials: putting goals in place and tracking their sales, expenses, and income. “Everything really flows out of the numbers,” said Tom. “I thought we understood the numbers, but this was an awakening.”
Getting clarity on the numbers had two effects:
- They started getting better, more consistent results once they were measuring results against goals and managing the gap between them.
- It gave Tom and Barbara peace of mind. They knew that once they weren’t involved in the day-to-day operations, the financial discipline would continue so the company would remains successful for their son and their retirement.
The Plan’s Structure
Every succession plan is different. They structured the buy-out in a way that worked well for everyone. They created two classes of stock: voting and nonvoting shares. Barbara and Tom each got 30% of the voting shares and Louis got 40%. So together, Barbara and Tom had a majority and remain involved in an advisory role.
In overall shares, Louis owns 94% and they own 6%. They also get paid a salary as board members.
“We’ve worked hard to enjoy these years,” Barbara said. This arrangement worked well for Louis too because he didn’t need to come up with a large amount of money to buy them out.
Tom added, “I was really struck by how much care and concern Louis had for us that we would be cared for.”
We also talk in the interview about the other two parts of succession planning. It’s not only about who owns the company, but also who manages and who leads the company.
It surprised Tom how easy it was to hand over the leadership and management. They structured it so it was a smooth process. “I don’t even know what day I officially retired.” he said.
It was more complicated for Barbara. “[Tom] never felt a sense of propriety in handing over the business. He was grateful. I had a harder time than Tom. I realized I would have a real struggle answering to my son, and I didn’t want us butting heads, so I retired earlier than I thought I would.”
“Our own self interest was that the company succeed. We didn’t want to get in the way. Everything was set up and structured so that we had to let go,” Tom added.
Whether you’re considering selling your construction company, looking at retiring, or simply wanting more free time doing what you enjoy, building systems that can sustain success in your absence, as Tom and Barabara point out, is key. In my book, The Profit Bleed, you can find tools and free downloadable resources that can help you get those process and systems in place. Make sure to check out the bundle of pre-packaged resources when you check out – they’ll make this process so much easier for you!
PS. Get your free checklist 12 Tips to Successful Succession.
PPS. Did this interview spark questions for you as you think about succession planning? Leave a comment below if you have questions we didn’t answer or share a helpful tidbit you have about this topic.
Vicki Suiter helps people see their businesses differently, then gives them the tools to do things differently. Since beginning her business in 1990, Vicki has helped hundreds of contractors achieve the kind of success they never dreamed possible. Today, in addition to consulting, Vicki is an in-demand speaker at industry conferences nationally and internationally. Vicki’s articles and opinions have been widely shared in print and across the web. She is also the author of the book “The Profit Bleed” How managing margin can save your contracting business.