The following article appeared in the Q1 2023 edition of Merchant Bonding Company’s Leaderboard Magazine.
There is perhaps no greater change that can impact a company like an ownership succession. That’s why at the first hint of a possible transition, owners should collaborate with key business partners and vendors to help design a seamless plan that eliminates as much uncertainty as possible.
And for construction companies undergoing a succession, perhaps no business relationship is more important than with a surety partner.
Owners must understand that a surety has a vested interest in a company’s operations and success. And because sureties evaluate a construction company on its ability to effectively complete projects, owners should realize the critical importance of minimizing distractions during an ownership transfer and keep the work flowing. That’s why owners would be wise to develop and evaluate their succession plan from the surety’s standpoint. Adopting this perspective when drafting a plan ensures that the firm maintains technical and operational excellence throughout the change. They can communicate the plan’s projected cash flow implications, while demonstrating an ability to maintain a sound financial position during the process. The result is the cultivation of a great relationship between the surety and the next generation of owners.
To truly operate with the surety’s perspective in mind, an owner should focus on three important tactics:
Make Stability a Priority
Leadership should always think about the ways a firm could evolve beyond the transition and the specific areas of expertise that should be developed by any of the executives staying on board. Surety’s need to know that once the new ownership is in place, the company’s vendor connections, workforce, and financial position will remain strong, and projects will continue to be completed.
Build New Relationships
When a succession includes key employees remaining in place, it’s vital that they be a part of any standing meetings with the surety. Creating these relationships will allow the surety to develop a foundation that sets up success for the new owners and reduces any uncertainty on the part of the surety. These employees should be experts in the company’s operational and financial plans and able to curb any concerns that new leadership will create delays or confusion in workflow.
Going Beyond Financial Forecasting
Any succession plan will include projected revenue after the transition, and a surety will be extremely interested in the integrity of these forecasts. But any predictions should go beyond just debt service, worker agreements and other revenue necessities. Be sure to include possible financial implications that could impede the continued operational needs of the company.
Perhaps most important in any plan that involves a surety, is to treat them as a true partner- not an obstacle or antagonist. Successions are an intense process that can be deeply stressful, or richly rewarding. And the insight of a surety partner can sometimes be the difference between which kind of transition experience an owner eventually has.