Time is the enemy for most contractors. Whether it is the threat of a missed deadline, late job payment or delayed material delivery, getting the timing right can be tricky.

Succession planning—often overlooked as a time-sensitive matter—is no different. An owner’s preparations for leaving the company in the hands of family members, existing employees or a potential buyer should begin as early as a decade in advance.

“The best time to start succession planning was yesterday,” says Jay Montalbano, managing partner at CPA firm Hannis T. Bourgeois in Baton Rouge. “Many business owners don’t have a conception of how long it’s going to take them to sell their business. In reality, successful transitions can take five to 10 years.”

Financial management and succession planning are deeply intertwined. Effective financial management ensures the business is stable and valuable before, during and after a leadership transition. Montalbano, who has helped develop numerous succession plans, says the process is often multifaceted and complex. Waiting until an owner nears retirement age can have costly consequences.

“Waiting too late can limit your options and kill your leverage,” he says. “The earlier you think about it, the better the results when you decide to sell the company or transfer ownership.”

Many of the steps involved are simply good business practice. Keeping accurate and clear financial records is the foundation of any sound succession plan, and it can also improve a contractor’s long-term profitability. Conversely, poor recordkeeping increases risk and decreases company value.

A consistent track record of reviewed and audited financial statements “says a lot to a prospective buyer when your succession plan is to sell the company,” Montalbano says, while unaudited books can make the numbers less reliable.

“If you’re trying to sell to an outside entity, having five to 10 years of audited history is going to make that transaction go a lot smoother.”

Kenneth Hedlund, managing director at CBIZ in Indianapolis, says that’s why his first order of business when advising contractors is to clean up their financials. About 80% of Hedlund’s workload involves internal successions, employee stock ownership plans, mergers and acquisitions.

“Regardless of the type of succession, businesses should focus on the same things —strong balance sheet, steady cash flow, consistency and profitability,” Hedlund says. “A well-capitalized company always has a lot more flexibility and options.”

As Hedlund puts it, a contractor needs to demonstrate “quality of earnings” to a potential buyer, meaning the earnings are consistent, predictable, understandable and profitable. Any spikes should be thoroughly explained.

“You’re selling profitability and debt-free cash flow to a buyer, so your financial statements can’t be messy.”

Contractors should also prove they can manage projects effectively and complete them at margin or better. “Having a tight system internally around the work-in-process schedule is probably 80% of the challenge,” he says. “They need to show robust systems around budgeting, job costing and cash-flow monitoring.”

That can be difficult. Project margins are often based on estimates, and a completed job rarely hits the target due to cost variations, labor fluctuations and material price changes.

Complicating matters, there is often a communication disconnect between field managers and the financial side of the business. That can lead to inaccurate reporting.

“There must be a strong link between your CFO or controller and the project folks, focusing on communication and a process for reviewing projects, estimated costs and updating percentage of completion,” Hedlund says. “They must work together for a contractor to properly state their balance sheet, whether it’s receivables, work in progress, overbillings or underbillings. Your financial people need to establish that link.”

A CPA can also examine a contractor’s books to identify ways to improve profitability and value. Hedlund says he “scrubs” financials, pinpointing items that can be adjusted or removed. Personal expenses run through the company, for example, can significantly affect reported profit margins.

“That can distort their true profit,” he says, “and in turn yield a lower valuation.”

Owner compensation can often be added back to earnings since the owner will no longer be involved post-sale. Unusual one-time events that are not ongoing may also be adjusted. “It could ultimately result in hundreds of thousands of dollars in additional value for the company,” Hedlund says.

There are pitfalls to avoid. When selling a company, efficient tax management—or a lack of it—can make or break a deal.

Larry May, a partner at Carr, Riggs & Ingram LLC in Ridgeland, Mississippi, says minimizing the tax burden is the goal of both buyer and seller—and they are often at odds.

“My team and I do tax projections for anyone wanting to sell,” May says. “What’s in the best interest of the seller is to sell stock so they can get capital gains rates on as much of the money as possible. But the buyer wants to buy the assets so they can mark them up to fair value and start depreciation over. For both sides, it’s all about minimizing the tax burden.”

A buyer will typically resist a stock purchase because it can create exposure to litigation arising from the seller’s past projects. “If they buy the stock, that litigation is not going to stop with the old owners,” he says.

More commonly, buyers purchase the assets of the company while retaining the name—or a variation of it—to reduce litigation risk.

“It’s not what you sell a business for, it’s what you keep,” Montalbano says. “Getting a value on a business is important. That gets you 50% there, but the other 50% is how you structure it. You can ask for $10 million for your company, but if you’re keeping only $2 million, you haven’t done a good job.”

Corporate structure—whether S corp., C corp. or partnership—can also have significant tax implications.

“It’s important that you have a CPA involved, because there are all kinds of unique state and local impacts that aren’t always considered,” May says.

SIDESTEPPING THE RISK

A CPA-led team can also help address and mitigate risks before and after succession, including potential loss of key customers, bonding support or senior project managers.

Often, the success of a closely held business is tightly tied to its owner. That can complicate succession if employees or customers leave once ownership changes.

“The founder is so key and integral to the business that it’s hard for them to sell,” Hedlund says. “Without them, employees will start leaving, customers will leave.”

That makes early planning critical. Owners can begin grooming team members years before the transition. Deferred compensation or retention plans may help reduce the risk of losing key managers. “Many owners will depart the company, but not before they have good and reliable managers in field operations and someone who can take the helm,” he says.

Recognizing the importance of a smooth transition, ISC Constructors, a large family-owned industrial contractor in Baton Rouge, began laying the groundwork for succession several years ago.

The first phase was implemented about five years ago when co-founder Jerry Rispone stepped down as president and Donnie David assumed the role. It marked the first time in company history that neither Jerry nor Eddie Rispone, the original founders, led the company.

Another transition occurred January 1, 2026, when David shifted to ISC’s executive board and Thad Rispone, Eddie Rispone’s son, became president. The change included multiple departmental promotions, new hires and transfers.

Brett Nolinske, who became CFO at the beginning of the year, says that although the succession was largely internal, there were still financial considerations. The company closely monitored general and administrative costs throughout the process to avoid “sticker shock” as employees moved into new roles and additional hires were made.

They were also mindful of the risk of losing business during leadership changes. “We had new folks in new positions taking on more responsibilities,” Nolinske says. “That meant there was more job risk because everyone was being elevated to new roles, and we didn’t have that weathered eye on the job that we might have had for 25 years.”

ISC took a measured approach, mentoring new leaders for months before transitions became official.

“It boiled down to identifying those leaders, mentoring them and bringing them along ahead of time so the right relationships had already been established,” Nolinske says. “The previous CFO did a great job mentoring me, but it didn’t happen by accident.”

Some risks are less obvious, particularly when a sale is involved. Bill Cerney, a surety bond specialist at Gibson Insurance in South Bend, Indiana, says active surety bonds can create complications that are often overlooked. Most contractors provide personal indemnity for bonds and remain liable for project completion even after a sale.

“It’s important for the seller to be aware of that,” Cerney says. “Look at your surety agreements. They’ll likely say that any change in ownership requires notice to the surety or it might trigger a default position. When that happens, they’ll seek to ensure there’s adequate capital for the work to get completed.”

Communication is essential to avoid unintended consequences. “To prevent that, you’ve got to assemble the right set of business advisers so they can do their job and help you avoid them,” Cerney says.

A VARIED SUCCESSION LANDSCAPE

Succession plans vary widely, making it critical for contractors to surround themselves with qualified CPAs, attorneys and consultants. Some companies even hire third-party CFOs to help manage the process.

“There is certainly value in having a CFO or some type of internal CPA involved in the books, because there’s only so much information an external CPA can access,” Hedlund says.

“Construction is a high-risk business,” he adds. “Any contractor can have one bad contract that could devastate their equity and working capital, so you want to manage that risk with good internal processes that link financial management to your operations.”

Dave and Lorri Grayson, co-founders of 20-year-old commercial and institutional contractor GGA Construction in Middletown, Delaware, understood the importance of outside expertise when expanding into southern Delaware three years ago. Rather than pursue a full acquisition, they merged with Broadpoint Construction and brought owner John Schneider into the company as a partner, along with his eight-person team. The assets were transferred without assuming unnecessary risk and liability.

We felt this was the best approach,” Lorri Grayson says. “But we knew we wanted our own name and brand. We also wanted him and his people.”

A third-party CPA and temporary CFO helped navigate the process, including merging two accounting systems so both offices could share resources. “It took about three years to work out our processes and merge the two companies into one,” she says.

Now, the Graysons are planning the eventual transfer of their ownership to their sons. They’ve encouraged their sons to develop new clients rather than rely solely on existing relationships. “Our goal is to be completely out of the business in four to five years,” Lorri Grayson says. “We’re not there yet, but we’ve gone through the hard stuff.”

“When we finally pull away 100%, do I think they’ll struggle? Sure, in some respects,” she says. “That’s the challenge of any succession plan. How do you get them to continue on when you leave?”

SEE ALSO: WHY STRUCTURED KNOWLEDGE TRANSFER IS CRUCIAL FOR SUCCESSION PLANNING

The post ‘Start Yesterday’: Time Sensitive Succession Planning in Construction first appeared on Construction Executive.

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