Does your architecture or engineering firm's transition plan account for the unexpected? Do you have a plan?
According to the Exit Planning Institute, 66% of business owners set to retire in the next five years are not familiar with all exit options, 78% have no formal transition team, 83% no written transition plan, and 49% no plan at all. Perhaps the most startling—50 percent of exits are not voluntary.
So what’s your plan—for you, your partners, your company, and family—should the unexpected happen?
Donna Gaines, a transition and exit planning specialist with Riverview Consultants, notes how even companies with transition plans commonly overlook a contingency plan—a road map for continued success.
Common Reasons for Not Developing a Contingency Plan
You DO NOT know where or how to begin
Confidentiality - You may have difficulty discussing financial matters and personal goals
You spend your time “putting out fires”
The process seems too daunting
Gaines explains that one of the Five D’s often breaks up an A/E firm: Death, Disability, Divorce, Distress, and Disagreement. A well-designed contingency plan will diminish the negatives: downtime accompanying an unexpected exit, confusion over responsibility, and the possibility of losing revenue, valued employees, and clients.
So what factors make up an effective contingency plan?
Personal Matters: Determine personal financial goals. If I leave the firm, what compensation do I want? In case of death, what provisions do I expect for my family?
Risk Management: Organize a Contingency Planning Team and create an Emergency Action Plan. Purchase life and disability insurance, also called key man or key person insurance, so the policy’s financial compensation will keep the company going after the loss of a key executive. Have a key personnel backup strategy, and review non-compete agreements to be sure they are in force should you or other company leaders leave the firm. Determine what happens to the company shares now available. Who becomes a major shareholder, and what is the new reporting line?
Financial Matters: Revisit P & L annually and update a gross margin profit improvement plan. Consider stay bonuses for retaining employees.
Marketing: Since top individuals may bring in 70 percent or more of an A/E firm’s business, what’s the strategy to attract new business if a significant percentage of this work is lost? Determine whether changes would be needed to the marketing strategy by reviewing services, geographies, and business development approach. To maintain current plans, review marketing events your company has attended recently; create a master list of awards, community and industry events; and establish a lead tracking system.
Employee and Management Allocation. How will your firm work as a company when one of the Five D’s challenges its future? Review operations, employee handbooks, document leaders’ processes, and incentive plans. Do not move ahead assuming business will proceed as usual.
About the Author: In her 35 years coaching firms through transitions, Donna Gaines stresses “communication is the key.” Be sure to put all elements of the contingency plan in writing and communicate this plan to all those who will be affected—shareholders, board members, employees, clients, legal counsel, CPAs, spouses—or can provide invaluable input for identifying unintended consequences and what might have been overlooked. You can reach her at linkedin.com/in/gainesdonna.
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In the PSMJ Blog, we have covered ownership transition and the A/E/C industry from a number of angles. Here is a list of related blog posts: