How to Pass on Your Family Business Successfully in the Construction Industry
Family businesses are one of Canada’s most significant resources. That’s why each one must understand how to transition the ownership and control of it to the next generation when the time is right.
Owners must plan their exit strategy well in advance to ensure that every necessary step is appropriately taken. If there are any hiccups in the process, it could become difficult for the company to thrive after the transfer.
These tips can help you plan for a successful succession if you have a construction business that needs to be passed down to your kids one day.
Steps to Follow When Passing on a Family Business
1. Consult with tax experts
Consult a tax expert about the consequences of a succession before starting the rest of the transfer process. Most family businesses wait too long, which means the transition happens during a crisis moment. When that happens, it can lead to lost opportunities to reduce the company’s liabilities
Without proper planning, it could be possible for a family to pass on a business to someone who doesn’t have the money to pay the tax on the accrued capital gain.
2. Minimize the capital gains tax
Canadian companies that get passed on to family members are deemed to be disposed of at their fair market value. That means the family gets taxed on half the gain in value at their top tax rate. If you’re a qualified small business corporation, it helps to claim a lifetime capital gains exemption.
To qualify for the exemption, several conditions must be met. That includes having the family business owned by the same person for the past two years.
3. Assess the potential of the next generation
Does your family want to take over the business? When the current owner is ready to retire, multiple people might be prepared to take over the reins. If they lack the capability needed to be a leader for the company, profits can turn to losses relatively quickly.
It helps to put prospective owners through an organized training regimen to ensure they’re ready to take over the company one day.
4. Allow for enough time to finalize the ownership transfer
Before the ownership transfer is completed, a complete audit of the business is necessary. This work ensures that the company is unencumbered for a sale.
The company needs to go through a formal appraisal process. It also helps to have all the agreements that pertain to its operations legally documented.
Some family businesses might consider an earnout process while getting the new owners familiar with the daily expectations of the company. That’s why the entire transfer can take two years or more.
5. Build a cooperative team
The current owner must discuss their progression wishes when passing on a family business. Communication is the key that unlocks a successful transfer. Involving the successor in a company’s daily operations helps to put processes into place that can help them make better choices once they’re in complete control.
Once you hand over the keys to your company, they will be in full control. In an ideal setting, they’ll respect your wishes – but that won’t happen if those ideas were never communicated.
6. Include the experts to finish the transition
Transferring a family business requires an entire team of experts. The most important people are the owner and the successor, but you’ll also want the help of an accountant, an attorney, and a business appraisal expert.
Some construction companies can benefit from a family business planning specialist or a financial advisor.
If the company has a Controller or a CFO, they should be included in the conversation.
Don’t forget about your contractor marketing needs during this time. It might be necessary to have your web developer or construction marketing advisor be part of the process.
Once everyone is on board, decide on an exit date. It helps to build some flexibility into the plan, especially when there’s enough lead time available to manage any potential variables.
Digitizing Your Business After an Ownership Change
The truth about family-owned construction businesses is that they’re still a little stuck in the past. When a company gets passed down to the next generation, it’ll be in the hands of someone who has been entirely immersed in a digital landscape.
Transitioning to digital construction marketing can help the company move to the next growth level and provide a better survival guarantee.
If you don’t have a website yet for your family-owned business, now is the time to create one. Existing sites need an extensive audit to ensure the information communicated to visitors is accurate.
When you’re a supplier, a transition to an e-commerce platform makes it easier for customers and management to complete orders. You might even start thinking about using online paid media, network collaborations, and digital communication methods.
Succession planning for construction companies can take some time, but the effort is worthwhile. When you follow these ideas, you’ll set up the new owners for a successful run.