|Strategic Planning Information|
Succession Planning: Problems Getting Started
A survey released by the American Institute of Certified Public Accountants in the spring of 2005 illustrates a widespread problem on the lack of succession planning [deciding who will take over running the firm when the current managers die or retire]. The survey found that 60% of responding certified public accountant (CPA) firms have owners who are in the 55-to-62-year-old age bracket, and more than half (56%) have at least one partner who will retire in the next five years. However, according to the survey, 81% of these firms still do not have a written succession plan in place. Among those firms with annual revenues under $150,000, the percentage rose to 96%. If we polled small businesses in other fields, the percentages would be comparable: around 80% of small business owners have no succession plans.
Similarly, the Canadian Federation of Independent Business (CFIB) reports about 40% of small and medium business owners in Canada plan to leave or retire in the next five years, and 70% plan to leave or retire within 10 years. However, roughly two-thirds of the 4,300 Canadian businesses that responded to the federation's survey have completed no succession planning. Small and medium businesses account for about half of the jobs in the Canadian economy, and potentially more than two million jobs could be at risk to inadequate succession planning.
For many of these small and medium business owners, the practices they have built up are their most valuable assets as well as their primary retirement assets. But these owners believe they have plenty of time to arrange for succession. Many business owners put off dealing with succession because it is the least urgent matter on their plate. Too often business owners cannot stand the idea of letting go of an entity they created and for which they toiled to achieve success. Apparently, these small and medium business owners need assistance both in formulating plans and in actual transitioning to future managers and owners of the firm.
Succession planning, like tax planning, is just good common sense and should be a natural part of good business practices. As soon as business owners take out life insurance policies to protect their assets for dependents left behind, they need to think of succession planning. If business owners have children who do not wish to follow in their parent's business, then the business owners need to think realistically about the price they would be willing to sell the business to outsiders. In one sense, these business owners who plan to sell to outsiders are lucky that they can avoid the emotionally divisive issue of having to select a business heir from competing adult children or competing managers.
Succession planning would not be needed if the owner intended to wind down operations upon his retirement, but only 4% of the Canadian small and medium businesses that responded to the CFIB plan to close down their firms. The response from American small business owners would probably be similar. Yet without adequate succession planning, the firms could be in disarray upon the owners' retirement and unfortunately the businesses might fade away.
Inevitably, succession planning forces many owners to agonize over whether to pass on their business to family, employees, or a private buyer. They also worry about selling at the right price and finding a buyer who will treat the business and staff well. All of this planning occurs at a time when they are considering retirement and the other changes in their life that will occur when they are no longer running a business. As a rule of thumb, business should start developing a succession plan at least five years before the owner hopes to step aside or as soon as the corporation acquires capital assets with significant value. It can take up to two years to sell a small business.
About 30 per cent of successions feature the previous owner advancing a loan or seller financing to the buyer, because small business bank loans are difficult to get from a bank. When there are no family members interested, small business owners should consider handling their succession through life insurance. But few small and medium business owners have that kind of foresight.
Dr. Michael A. S. Guth, Ph.D., J.D., is a risk management consultant and practicing attorney at law based in Oak Ridge, Tennessee. In addition, Dr. Guth is a financial quant and former investment banker, having worked for Credit Suisse First Boston and Deutsche Bank in London and Frankfurt. He specializes in developing investment strategies and strategic plans for small and medium-sized companies, as well as mergers and acquisitions for large corporate clients. For five years, he consulted to the electric power and gas industry in the USA, and even managed the Middle Office (financial risk control) groups for two trading floors.
Dr. Guth has taught over 30 courses on-line at the undergraduate and graduate level on topics ranging from Managerial Economics to Strategic Management to Business Law. He can be reached through web page http://riskmgmt.biz/economist.htm
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Describing Intellectual Property in Your Business Plan
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It is always said "If you Fail to Plan, you Plan to Fail"
How To Leverage Your Current Ideas And Products Into Multiple Revenue Streams
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Does your overall business strategy include the recruitment of college students to run your locations? Are you a franching company and looking for young, talented, hardworking and dedicated franchisees? There are some things to think about before you deploy such a strategy. There are both positives and negatives to focusing your recruitment efforts on college students, for instance best reason's to use college students include some of the following:
Clearing the Path: 4 Ways Fear Wreaks Havoc on Your Dream and What to Do About It
Please take a moment before you read any further and answer these three simple questions:
Nine Succession Planning Mistakes Small Businesses Should Avoid
1. Attempt Succession Planning Without Other Strategic Plans. Succession plans define a company's business heirs, but what will they inherit? They will inherit a company with no vision, no strategy to deal with the competition, and no plans for changing the way it does business, if the current owners spend too little time planning for the future. Every firm should have strategic plans to increase its market value.
Dotcom Business Plans Archive Project
One of the most important initiatives in the domain of business documentation is that of professor David Kirsch from the University of Maryland, who thought of a dotcom Business Plan Archive - , a project that consists of collecting business plans for posterity. The project was started in 2002, through the Web portal businessplanarchive.org. The site was built by Webmergers.com and the University of Maryland's Robert H. Smith School of Business, in collaboration with the Center for History and New Media at George Mason University.The project received financial support from the Alfred P. Sloan Foundation.
3 Ps of Planning - Prepare, Personalize, Pilot
Here's a really simple way to make sure your plans always produce the results you expect.
A Unique Joint Venture Twist: Make Huge Profits Even If You Have No Money, No Products, and No List
Would you like to jumpstart your online or offline business without spending a ton of money?
I Always Play by the Rules and It Stinks!
This week I coached a wonderfully lovely woman I'll call Jill. She's a bright woman, very compassionate and sweet. She's at one of the corporations where I am an outside consultant/coach. This was our first meeting but within seconds I could tell she had a lot on her mind.. and her plate.
Under Construction During the Storm ? A Hurricane Guide for Businesses that are Under Construction
As a business owner, you've likely created a hurricane plan for your business and your family, but did you overlook your construction project? Don't worry, you're not alone. Most people don't even think about preparing their construction site because it's not written into their "construction timeline." But when a hurricane threatens, general contractors usually get panicked phone calls asking about potential damage, delays and cost.
To Go or No Go, That Is The Question
Last week we talked about a few of the ways to test the feasibility of a business idea to help determine if the idea really had merit or just looked good on the surface. To recap, I said don't bet the farm on the opinions of friends and family, consult with knowledgeable business experts, and conduct a SWOT (Strengths, Weaknesses, Opportunities, and Threats) Analysis. This week let's take it a step further and talk about the creation of a formal Feasibility Plan which will help you determine the true feasibility of your big business idea.
Attributes of Companies You Dont Want to Buy!
There are no "rules of thumb" in the pursuit of companies to buy. Each purchase opportunity has to stand on its own merits. There are, however, attributes of acquisition candidates that need to be defined for what they really are before additional, limited resources are put at risk in a potential deal. It is absolutely critical for any proactive business buyer to understand, consider and deal with specific business characteristics that add unnecessary financial risk to the investment opportunity at hand.
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