An internal transition can help to maintain these relationships and preserve the company’s reputation, values and operational structure. Unlike external sales or mergers, which may disrupt company culture, an internal transition can ensure continuity in leadership and business philosophy.

It also stands to reason that those internal successors, whether family members or key employees, are already embedded within the company, and thus reducing the learning curve. Their familiarity with operations and existing relationships fosters business continuity.

A phased transition approach, such as a structured buyout or mentorship program, allows for a smoother leadership handover while minimizing operational disruptions. Keeping the business within the family or employee base can also enhance morale and commitment. Employees often feel more invested in the company’s success when they have a direct stake in its future.

Similarly, a well-prepared family succession plan can provide long-term stability—with a proviso that the next generation is equipped for leadership.

 However, challenges do exist in regard to internal transitions. Unlike external buyers who often bring substantial capital, internal successors may struggle to afford full market value upfront, as banks will typically not finance an entire deal. Owners may need to finance the sale themselves, which carries inherent financial risk. Furthermore, successors may need to utilize cash flow from company operations and profit-generating activities to help make these payments.

Construction company leadership requires many skills and talents, such as technical, financial, management and leadership expertise, to name a few. Not all family members or key employees possess the leadership capabilities necessary to sustain and grow the business on all fronts. If leadership gaps exist, investing in training and mentorship well in advance is essential, as the combined team should be able to leverage these talents.

Internal transitions can also be complicated by interpersonal conflicts. Family-run businesses often face disputes over roles, compensation and wider strategic vision. Similarly, internal power struggles among employees or management groups vying for ownership can disrupt operations. Additionally, if the former owner remains involved post-transition, resistance to change or micromanagement issues may arise. Selling internally often results in a lower purchase price compared to an external sale to private equity firms or strategic buyers, who typically offer more competitive valuations. Business owners must balance their financial needs with their desire to keep the company within familiar hands.

Choosing the right succession strategy is one of the most significant decisions a construction business owner will make, and all options require careful planning. Passing the business to a family member can be an effective succession strategy, but not all heirs are interested or capable of running the business.

Internal transitions provide continuity, cultural preservation and potential tax benefits, but they also present financing, leadership and valuation challenges. A management buyout, meanwhile, ensures continuity, as the buyers are already invested in the company’s success. However, financial constraints may necessitate external financing or seller-backed loans, which can be difficult to source.

By understanding the advantages and risks associated with family succession, management buyouts, and other options, business owners can make informed decisions that align with their financial and legacy objectives. With strategic planning and the right advisory team, internal transitions can set both successors and the business up for sustained success.

About the author: Phillip Ross, CPA, CGMA is an Accounting and Audit Partner and Chair of the Construction Industry Group at Anchin, Block & Anchin, LLP. For more construction industry thought leadership and content, log on to www.anchin.com.

Published: April 17, 2025.