What are you doing about succession planning and your exit strategy?

I attend many industry events in the A&E industry such as conferences held by the ACEC, SMPS, and AIA, and have observed a trend lately that has me concerned. This trend is the aging of the A&E firm principals, and based on my recent conversations with staff at several firms, many of their employees are concerned about this too.

I first recognized this as an issue while at the ACEC national conference in April in Washington, DC.  From my observations it appeared that at least 75% of the attendees at the conference were white men that appeared to be over 50 years of age. I started wondering what these firm leaders were doing to prepare for their eventual retirement, and transition to a younger group of leaders, and how will this affect the A&E industry?

Is your firm doing succession planning?

So I started to ask my clients questions. I also started talking with the younger generations in these firms about their concerns and what they were being told about the firm’s succession plans. Let’s face it, if a firm leader is over 55 years old and has not started to prepare the firm for their eventual retirement, they are behind the eight ball. They are also at risk these days of becoming an obsolete firm as the younger generation of clients coming along will respond to different types of marketing messages and want to work with principals their own age.

While I plan to do further investigation to really dig into this issue to understand the deeper problems that are evolving as the demographic of the firm leaders in A&E firms continues to age, here are the issues I have been able to uncover so far:

Lack of an ownership transition plan

many of my clients and other firms that I spoke with do not yet have an ownership transition plan. I believe this is because many firm owners exit strategy is simply to just sell their business when they get ready to retire.

Some have not even planned for who would take over their firm if they were not able to work anymore. This lack of succession planning leaves the firm in a vulnerable position, and also runs the risk of discouraging younger principals or project managers that are looking to eventually gain ownership. One client I interviewed told me that at age 64, he was planning to work to age 80 and had plenty of time to work on this issue!

Hobson Hogan of ZweigWhite advises that it takes at least 10 years to plan, implement and fund a transition plan for the younger generation of leadership. If your goal is to have your younger managers eventually become principals and buy out the current owner’s interest, you had better allow 10 years to get everything in place or find an alternative transition plan. Waiting to sell your firm someday may not get you the value that you had anticipated, and could affect attainment of your retirement goals.

Outdated firm culture

In my recently published book, Find the Lost Dollars, I identify 10 culture traps in A&E firms that affect the profitability and growth of the firm. I blame many of these culture traps on the age of the A&E firm principals and their adversity to change, unwillingness to embrace new technologies, and failure to adapt to a new world economy.

This is particularly common in smaller firms of less than 50 employees that have one or two principals over 55 years old. When talking with several younger employees at the recent SMPS Build Business conference in Orlando, many of them expressed that their firms were slow to change, and that their systems and processes were old and outdated. They also commented that there was a gap in the age and capabilities of the younger, next level of leaders, many in their 30’s leaving a 20 year gap between them and the principals. These younger employees conveyed their concerns about the future of their firms, and their struggles as marketers to stay relevant and contemporary with their outdated internal cultures.

Failure to train and groom the future leaders

Another concern that has been consistently expressed is the lack of formal training for project managers and other younger principals to eventually take over the firm leadership. While many firms provide formal project management training to their managers as part of their annual professional development, many do not provide the business management and development training that these future leaders need to be successful and eventually take over the firm.

Many skills and experience that these employees need to gain to be ready to lead the firm include:

  • Financial management including accounting, cash management and financing, financial measurement and reporting
  • HR policies, practices, and laws
  • Marketing and business development best practices
  • Tax compliance and mitigation
  • Legal and insurance concerns
  • Client relationship management

Part of running a successful and profitable firm is strategically planning for it’s future growth. Without a transition plan to move the firm ownership into the hands of younger managers and leaders, an aging middle age owner may one day find that he or she is not able to get the full value that they had planned to take out of their firm at retirement.

Start today to look at options for financial transition, and groom your younger staff to take over more of the decisions, client relationships and management of the firm operations. There are many great consultants out there that can help with this transition, and offer the best ideas and advice for how to carefully craft an owner’s exit strategy while they still have time to finance and prepare future leaders to take over the reins.

 

Here are some partners we recommend for succession planning:

ZweigWhite, PSMJ Resources, and ROG (Rust O’Brien & Gido)


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