Home
>
Strategic Planning
>
Getting Started with Succession Planning: Part I

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

ohare limo service Grand Rapids ..

In The News:

The International Olympic Committee on Friday announced plans to use AI in various Olympic aspects, including athlete identification, training and judging.

Tech guru Kurt "CyberGuy" Knutsson explains an easy trick to avoid squinting while working or surfing the web by zooming in on your personal computer.

Streaming giant Roku has recently been targeted by a pair of cyberattacks, and the company confirmed over a half million Roku accounts were compromised.

The Land Aircraft Carrier combines an all-terrain, six-wheeled vehicle with a two-seat aircraft, which features electric vertical takeoff and landing.

The European Union has sent TikTok a "request for information" on the video sharing platform's newest app, TikTok Lite, under the Digital Services Act, with the aim to clean up social media.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

The FBI is warning the public about a recent phishing scam via text that claims its targets owe money in Pennsylvania for unpaid road toll charges.

Your Apple Music settings may be revealing to your contacts what you're listening to. Kurt "CyberGuy" Knutsson explains the process to change those settings.

Learn how to secure social media accounts, implement legacy contacts, and create a digital estate plan to protect your online assets from 'ghost hackers' after your death.

A ported phone number scam is leading to more people having their identities stolen by sophisticated scammers. Kurt “CyberGuy" Knutsson tells you what you need to know.

The Great Pacific Garbage Patch, a vast marine debris vortex, is being tackled by The Ocean Cleanup’s innovative technologies. Kurt “CyberGuy" Knutsson explains.

Discover easy solutions to tame autocorrect frustration on iOS and Android devices. Turn off, customize and add personal touches to your typing experience.

Kurt “CyberGuy" Knutsson reveals the six top things to do right now before it’s too late: Tech and life choices that can keep your safer on and offline.

Kurt “CyberGuy" Knutsson shows you some simple steps to discreetly hide apps or an entire app page on your iPhone for decluttering or confidentiality.

The ambient light sensors on smartphones may be turned into cameras, according to researches at MIT. This could pose a threat to people's privacy.

The Autonomous Road Repair System from tech firm Robotiz3d uses artificial intelligence technology to locate potholes and promptly seal them.

Scammers have stooped to using artificial intelligence to scan obituary websites to create fake obituary websites to target the grieving.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

A Mercedes-Benz Manufacturing factory in Hungary is using humanoid robots to help with human staffing shortages on the factory floor.

Some video games act like unregulated banks, according to CFPB, which has begun monitoring the situation. The agency says children may be most at risk.

Ascender the robot is capable of climbing stairs with heights up to 8.7 inches, and it can give every corner of your home a deep cleaning.

Tax-return scams are on the rise, and one tax expert from a cybersecurity firm says filing your taxes on time is one way to avoid tax scams.

The innovative XPENG Robot Unicorn is inspired by the mythical unicorn, and you may forget the robot is not actually a living creature.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

The Federal Trade Commission, the federal agency to report scams to, is being impersonated as part of a new sophisticated phone scam.

Getting Started with Succession Planning: Part I

Strategic Planning