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Getting Started with Succession Planning: Part I
GETTING STARTED WITH SUCCESSION PLANNING: PART I
A survey of 4,300 small business owners by the Canadian Federation of Independent Business (CFIB) revealed about 37% said they plan to sell their businesses upon retirement to non-family members. Twenty-six per cent said they planned to transfer or sell their business to family members, and an equal percentage had no business transfer plans yet.
These numbers are significant, because in both the USA and Canada, approximately half of all workers are employed in small and medium businesses. Inadequate succession planning and business failure could jeopardize millions of jobs in both countries.
The first births of the baby boom generation will be turning 60 in 2006. This fact means more and more small and medium business owners will be retiring in the next ten years than in any prior period in American and Canadian history. All of these business owner retirements exacerbate the problems of lack of succession planning, which including keeping the business viable post-retirement of the founder(s).
When business owners do not have children who will take over the business upon their parents' retirement, then they need to think realistically how much they need from the sale of their business and its fundamental worth.
To ease the sale to new owners, approximately one-third of small and medium sized businesses will find they need to offer the buyer some form of seller financing. The previous owner could hold a mortgage on the business or accept payment in full (with interest) over a specified number of years.
Most owners of small and medium-sized businesses avoid talking about succession planning. Such plans force the owners to confront their own mortality and the business continuing without their input. Yet, there can be no orderly transition to new owners without a succession plan: the business is practically guaranteed to cease to exist if a battle ensues about who controls the power, assets, and ownership of the firm. When confronted with the question of whether they want to perpetuate the business that they invested a lifetime of effort to bring to success, then business owners agree that they need to take necessary steps to plan for succession.
To help these business owners get started with succession planning, we have put together a checklist of items that will get the process rolling. The first step is to assess the current situation. Which current positions are vital to the company and need to be filled a priori in any transition? Of those positions, which ones are filled by people who would be expected to retire in the next five years?
The second step is obvious: identify who in the current organization could fill these vital roles and replace the retiring incumbents. Which employees show promise and deserve consideration for promotion to positions with more responsibility. To maintain employee morale, companies should first look within to find successors before looking at external candidates.
Third, try thinking outside the box and planning for the evolution of the firm as it competes in future markets. An owner should not try to find a clone of himself as his replacement. Instead, the owner should consider what new challenges the firm will face in the future and what kind of work experience, education, training, and other skill sets (perhaps different from the current owners and managers) would best enable a person to run the firm in the future. How will the company grow, and who has the qualifications to grow the company as intended?
It may be necessary to take steps today to plan for a succession five years from now. For example, the company may not be using the latest Internet technology today in its communications; however, the owner knows the Internet communications will be increasingly important to the company's survival five years from now. Therefore, the owner needs to ask whether certain capital expenses should be incurred now to strengthen the company's overall position five years from now, whether the succession occurs then or later. Similarly, the owner must ask if there are other decisions that need to be made now to enable the transition to new owners to execute more smoothly at some future date.
No business remains static but is constantly changing and adapting to the competitive environment it faces. Has anything changed recently in the company that would require a new approach to the succession plan? Is the firm's business strategy evolving with the times, or is the strategy the same as it has always been? When companies get too staid and seem to continue in operation out of inertia, it may be time to bring in a new generation of leaders outside the firm with fresh ideas and better approaches to marketing and growth. The current group of managers in the firm may perform well for the present market conditions but may lack skills and experience needed to address future anticipated challenges particularly in the area of using the latest technology.
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
TQM Total Quality Management, the book
Every decade we seem to come up with a buzz-word to describe the things we should be doing right all the time. Forever we have heard our parents or grandparents use little phrases to get our attention. "If it is worth doing, it is worth doing right? Or "Never enough time to do it right, but always making time to do it over." Quick quotes like these and there must be a hundreds of different ones which all lead to the same thing. In the 1980's and early 1990's it was TQM or Total Quality Management. Deming and Peters harped on this like there was no tomorrow. Then later on we had the Six Sigma by GE and the Jack Welsh crowd of executives and remember the ISO 9000 series of quality and perfection. Now then let's get back to; TQM Total Quality Management, the book. If you have not read it, then you should because you can buy it at any garage sale for $1.00 or at a used book store for $4-5 dollars. Amazon has tons of used ones for sale as well. Make sure you buy the right book, as there must be 100 or more books on that subject:
Going Self-Employed ? A Few Handy Hints
The day you decide to take the plunge and work for yourself will be one of the most life-changing choices you ever make, whether starting a company large or small or as a freelance; from the very first moment of being self-employed, you and you alone will stand or fall by your decisions and actions. You will be responsible for steering your business through all its ups and downs, good times and bad times with no guarantee that everything will turn out right in the end.
Will and Vision
Remember Chux? The disposable diaper that took the market by storm in 1932?
Expanding your business in a franchise system
If you are a successful franchise of a large franchise brand or chain, chances are you will wish to expand. The most important thing to do is make sure you are on the most positive terms with your franchisor. You should tell your franchisor at the earliest point of your plan to expand. It is important that you ask the franchisor for help when you are expanding. Growing your business is not an easy task. It requires systematic checks of your business. The kind of checks your car does electronically such as sensors telling you:
Have You Identified the Enemy?
One of the most powerful driving forces in human nature is competition. The desire to overcome something or some company, the need to win, the cause, can in many cases be more important than the day-to-day work of the company.
Designing an Efficient Distribution System
Let us look at a few of the big distribution networks in the US that we use today. The US Post Office for instance is a huge complex chain of symbiotic relations ships with vendors to deliver by truck, work with FED EX for air, previously that airmail idea started commercial aviation. The reason it grew big and evolved so well is because of the special teams and companies and individuals from the first air mail carriers to the Wells Fargo Coaches. A much better system than Paul Revere; although he was very simple with only two possible signals 1 or 2 "if's" scenarios. Let's face it 1's and Zero's or 1 or 2 ifs are different than today.
Be Like Bill - Think!
Twice a year, Bill Gates goes to a remote island hide-a-way for a week at a time. No, he's not going for a fishing vacation; instead of rods, reels, and lures he takes market analyses, position reports, engineering reports, and opportunity papers. In solitude he reads and thinks and reads some more, writing notes in the margins then composing questions, thoughts, and his own positions that will impact the future of Microsoft and the entire technology industry for years to come.
3 Ps of Planning - Prepare, Personalize, Pilot
Here's a really simple way to make sure your plans always produce the results you expect.
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.
Consolidation in the Software Industry is Hardly New: Obsess About It or Risk Losing it All
Some analysts credit [Larry] Ellison with anticipating the consolidation in the enterprise software industry and leading the charge. Ellison 'called a major shift in an entire market, which was impressive.'(1)
Secrets Of Effective Brainstorming
Have you been in a "brainstorming" session where each person just defended their own ideas? Worse is when people don't suggest ideas at all, for fear they'll be attacked. That's no way to brainstorm. Brainstorming is using the power of many minds, and ideas should flow freely and trigger other ideas. How do you make that happen?
Could You Be Setting Your Business Plan Up For Failure?
David E. Gumpert, author of Burn Your Business Plan, often tells the story about how he and his partner failed to raise money after sending their business plan around to venture capitalists and meeting with several others to make presentations. Disappointed by the fruits of their labor, they considered giving up on their venture in 1995. Fortunately, on the advice of their board of advisors, they chose to divert their time from massaging the business plan to making sales. The financing, they were told, would come later.
Vendor Relations Strategies Sample Outline
One of the quintessential parts to any business is your supply chain. To insure that the supplies are there when you need them; in this new day and age of "just in time" distribution where very little sits on warehouse shelves until you order it you will need excellent vendor relations. Without the help of your vendors a small customer need turns into a astronomical problem and if you cannot solve it or serve your customer, you will indeed lose that customer to someone else who will. Someone who has constantly maintained a close relationship with their vendors in fact and can get what they need quickly with a simple phone. You say; "you wish it was that easy!" Yes, I hear you, yet I have seen over the years that with the proper vendor team, you can do anything, build anything, create anything and move forward faster than any competitor ever dreamed of. How do I know? Well, I built a multi-state franchise company with no outside investors from the smallest of small businesses, that's how.
Restaurant Startup - Part 1: Market Research ? What are Potential Competitors Doing?
The first step in starting a restaurant is proper planning. One must lay out a plan complete with goals, priorities, and the tasks that he will need to complete in order to achieve these goals. The biggest mistake first time restaurant owners make is improper planning. Ambition, while absolutely required, is simply not enough to succeed in the highly competitive food service industry.
How to Snuff Out the Competition Without Leaving a Mark
Does the competition drive you crazy?
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:
Six Key Principles of Corporate Accountability
The foundation of any business transaction is the promise of fair deal. In complex organizational relationships, it is all too easy to lose sight of the existence and terms of this deal. On the surface, that employer/employee relationship, called a job, is a fair deal wherein the employer's money is traded for the employee's time and talent. The deeper reality, however, is that the employer is actually trading resources for a set of desirable results, which the employee is expected to deliver. The promise to faithfully deliver as agreed by both parties is the essence of accountability.
Do You Have A Customer Identity Crisis?
The trick is to determine what uniquely identifies your best customers. Fortunately, deriving this information is not difficult, and in many cases can be obtained from innocuous questions. Consider a manufacturer of baby goods and the fact that families with new babies often purchase multi-passenger vehicles. This manufacturer could build an effective mailing list by surveying recent car purchasers and noting which respondents had traded in sports cars for SUVs. Your information gathering technique of course will vary, but the identifying information always comprises the same three pieces -- demographic information, geographic location, and purchasing history. Demographic Information
The Magic Of Exponential Business Growth
Is there a 'magical' way to exponentially grow your business?
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