Case Study

Revitalizing and Increasing Value For a Family-Owned Construction Company

Hardhat in foreground, people pointing at paper in background

Insights

  • A well-established family construction business had grown significantly, but was experiencing new entries to their market
  • The company was a market leader in quality and service, but customers were choosing low cost providers over service and quality
  • More competition was being experienced for large institutional engagements
  • Reductions were being reflected in the company’s gross margin percentage and the company’s cash position was being affected by higher labor costs
  • Fewer highly qualified employees were in the market due to the new competitors
  • The highly competitive labor market with record low unemployment, coupled with competitors offering “jump” bonuses, was making it difficult to maintain employees
  • The family was not active in the business except for one member, so there was an immediate need for a family or senior executive leadership succession plan

Actions

  • The Newport partner was retained to serve as an independent board member to this well-established family construction business
  • Cash collections significantly increased by improving billing and collection including adding ACH and electronic payments to receive faster customer payments
  • A risk management plan was created, including preparations for an economic downturn in mid 2019, long before the 2020 recession began
  • A succession plan for senior employee retirements was created
  • A compensation plan was also crafted (phantom plan) to entice new line and management employees and retain existing employees
  • Backlog was significantly increased by measuring the point of fixed cost coverage so that bids could be made profitably at a lower gross margin
  • Benchmarking and key performance indicator measurements were developed and kept the company in line to meet the financial goals established by the Board
  • Guidelines were established for salary and bonus plans for executives

Results

  • The company was well positioned to survive through the 2020 economic downturn
  • Due to the significant cash balance increase, dividends were reinstated to family members after 12 years of no dividend payments
  • The company was becoming the “employer of choice” in this industry as competitors were not prepared for the economic downturn
  • The company’s cash position was doubled to prepare for expansion and growth
  • All of the company’s non-real estate related debt was eliminated
  • These efforts and results significantly increased the value of the company
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