Executive Insights for Construction Owners

One of the most common mistakes construction owners make when managing their wealth is assuming they are going to be able to monetize the value of the company. Many owners reinvest all of their profits into their company, and in good economic times, this can result in enhanced profitability. However, if the economy turns and the company faces headwinds, the ability to monetize the value of the company becomes more difficult.

In this industry, bad things can and do happen, and the value of the company can erode quickly as those risks materialize. Subcontractor defaults, estimating errors, productivity challenges, litigation, and customer payment issues, among many others, can all contribute to large losses and the rapid use of cash reserves. Construction companies are difficult to sell in the best of circumstances, and with these downside risks, it can make a quick and clean exit for the owner exponentially more problematic—and, in turn, dramatically impact the owner’s wealth. If all of your profits have been stored away in your company, your concentration risk is much higher. When the headwinds happen and your company cannot recover, the likelihood of meeting your future financial goals is significantly reduced.

As many advisers will recommend, diversifying your portfolio to reduce your overall risk profile is the key to wealth preservation. Distribution of profits out of the company, when excess cash is available, should be considered. You can then use those profits to diversify your asset mix, whether it be real estate, stocks, or other investments. Building wealth outside of the company is advantageous and highly recommended.

To learn more about Brown Edwards and our construction practice, reach out to practice leader, Billy Robinson, or visit our website

This insight was originally shared in the 2022 Executive Insights article in the July/August issue of Construction Executive Magazine.