Ownership transition needs to start now

Oct 30, 2022

The future will be here before you know it, so there is no time to delay your ownership transition planning efforts.

Ownership transition is one of those things that many owners of AEC firms really don’t think much about. They hope it will all somehow work out when the time comes, but don’t really understand it. They know it’s important, but they think of their exit as something that will take place a long time into the future, so any decisions about ownership transition get pushed out.

That’s a problem. Whatever your personal plans are, you need to start now. Why is that, you may ask? Here are my thoughts:

  • Anything could happen. You may find yourself sick, or worse, die unexpectedly. You want your family to be taken care of and you want your business to survive. So it’s best to plan now. Do you have a buy/sell or shareholder agreement or an LLC operating agreement that specifies how your ownership interest is valued? If not, get that fixed now. Do you have life insurance with the company being the beneficiary so they can buy your stock back? If not, get it. You don’t want to deal with these issues when it’s too late.
  • Ownership transition could take a long time. It will always be easier and less painful for all involved if you start sooner. Who says it needs to be a switch that is flipped so it all happens at once? Maybe paying for your ownership stake over 20 or 30 years will be less painful than doing it at once or over five years. So if you start the process and sell a little bit of it every year between now and the time you plan to retire that could create less strain on everyone. It will also supply you with a certain amount of income you wouldn’t otherwise get which could allow you to take less out of the company at tax time to meet your tax obligations, and that will help the company have a stronger balance sheet. There are many reasons to start the process early!
  • Ownership is a critical tool to motivate and retain your top talent. It is – and always has been as long as I have been working in this industry – a career objective of many people. Why hold them off? If you can sell these people some ownership sooner rather than later, you will be more likely to keep them in your company. You may even get a non-compete. It will get these people into thinking about the overall business more than just their own discipline, or office or team. There are many reasons to get your best people into ownership sooner rather than later.
  • You also need to be readying someone to take over your job. Leadership succession goes hand-in-hand with ownership transition – or at least it should. I had five years to prepare my successor, Chad Clinehens, at Zweig Group, and another year or so after that before he became the majority owner. It gives someone time to work in each area of the business, to form relationships inside and out of the company, to prove themselves and to learn how everything works while you are still there. The transition is much more likely to succeed as a result. You don’t want to be rushed. You could make a mistake and pick the wrong person and that would put you back at square one. You will need more time to recover from that if that happens. So start early!
  • You need a financial model. It has always amazed me how so many companies do not have this – a model that shows the estimated value of ownership for each owner based on projections for what is likely to occur – one that is updated continuously based on actual financial results and changes in ownership that have occurred. It’s not that hard to do, and Zweig Group could help here if you need it.

So hopefully by now you understand why there is no time to delay your ownership transition planning efforts. The future will be here before you know it! Take it from me – I’m 64 and it’s hard to believe it because I still feel like I’m 27!  

Mark Zweig is Zweig Group’s chairman and founder. Contact him at mzweig@zweiggroup.com.

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About Zweig Group

Zweig Group, three times on the Inc. 500/5000 list, is the industry leader and premiere authority in AEC firm management and marketing, the go-to source for data and research, and the leading provider of customized learning and training. Zweig Group exists to help AEC firms succeed in a complicated and challenging marketplace through services that include: Mergers & Acquisitions, Strategic Planning, Valuation, Executive Search, Board of Director Services, Ownership Transition, Marketing & Branding, and Business Development Training. The firm has offices in Dallas and Fayetteville, Arkansas.