Business owners arrive at the choice of winding down their construction company for a variety of reasons. For some, it may have been the plan all along. They simply have no desire to attempt to continue the company or deal with the challenges that can be inherent with other succession planning options. For others, winding down becomes a last resort when other types of succession strategies are unworkable. We’ve seen owners attempt to sell to key employees that ultimately weren’t interested in ownership or who turned out to be incapable of running the business. Whatever the reason, winding down a construction company isn’t easy and involves many difficult decisions. If you are considering going down this road, understanding the operational, personnel, and financial implications in advance can help you avoid costly mistakes.
The Chicken or the Egg
Winding down a business inherently involves reducing the size of the organization until there is nothing left. However, construction companies that have long-term contracts need to retain employees to finish the work, and if those employees realize the company is going to be shut down, they may decide to leave before the work is complete, leaving the owner without the staff needed to finish the jobs.
Knowing who to inform on your team and when to inform them is a very delicate balancing act. Even if you no longer want to take on new work, abruptly stopping bidding or eliminating your estimator can signal to employees that something has changed.
Additionally, as jobs finish in the field, you need to decide where to move your labor, foremen, and superintendents, and which ones need to be let go. Productivity can suffer during this process. Even after the last project is complete, you remain responsible for warranty requirements in your contracts, so it’s important to keep this in mind as you’ll need to retain the ability to perform that work.
Stay Bonuses
A solution that we’ve seen many contractors use is to incentivize their key employees to stay by paying them bonuses as they complete jobs. This helps provide a financial reward to the employees and reduce anxiety over knowing their job is coming to an end by providing a financial buffer.
We’ve also seen business owners go to great lengths to arrange other jobs for their key employees. This can help align employees with other companies and owners that are a strong cultural fit beyond just meeting their financial needs. With today’s labor shortage in the construction industry, we have seen ample opportunity to find placement for good employees.
Financial Perspective
From a financial standpoint, the goal with a wind-down is typically to get as much of the equity out of the business after completing all work, collecting receivables, settling change orders, and selling property and equipment.
Oftentimes there are trailing costs that eat into the retained earnings like insurance that needs to be renewed, rent, and employees that stick around to complete work or warranties but aren’t fully productive. There may be some upside on the sale of property or equipment that has been depreciated below its true value, but oftentimes, ultimately what comes out of the business is slightly less than the retained earnings at the time the decision to wind-down is made.
This is helpful to keep in mind, because the wind-down option can be used as a base level to compare to the potential value that may be obtained from selling to a key employee or outside party.
Conclusion
Every construction company represents years, often decades, of risk, effort, and sacrifice. Deciding to wind it down is rarely easy. It involves more than financial calculations; it involves people, reputation, and legacy. By understanding the operational challenges, aligning incentives for key employees, and planning carefully for the financial closeout, you can exit in a way that honors the work that built the company. A thoughtful wind-down ensures that the final chapter of the business is handled with the same integrity and professionalism that defined its success.
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