Home
>
Strategic Planning
>
Succession Planning: Problems Getting Started

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

efficient cleaning crew Lake Forest ..

In The News:

Washington court rules automated license plate reader images are public records, even when stored by vendors like Flock Safety, setting precedent for transparency.

Fake airline texts claiming flight cancellations are targeting travelers with convincing scams. Learn how cybercriminals steal personal data and credit card info.

Discover how iOS 26's new Adaptive Power feature automatically extends iPhone battery life by learning your usage patterns and adjusting performance intelligently.

New TikTok malware campaign tricks users into running PowerShell commands that download Aura Stealer, which steals credentials and authentication tokens.

Gaia Family offers fixed upfront pricing for IVF cycles with unlimited embryo transfers and financial protection, partnering with over 100 U.S. fertility clinics.

The Jetsons Act aims to position Pennsylvania as a leader in advanced air mobility by establishing regulations for hybrid ground-air vehicles.

Fake Geek Squad invoice emails are targeting users with convincing charges and urgent phone numbers to steal personal information and money.

Fox News Digital's artificial intelligence newsletter digs into a robot in Russia that faceplanted, George Clooney's alarm and OpenAI's rivalry with the New York Times.

Major data breach at Conduent exposes personal information of 10+ million people. Government contractor hit by cyberattack affecting Medicaid, child support systems.

Texas startup Janta Power raises $5.5M for innovative vertical solar towers that generate 50% more energy than traditional panels while using just one-third the land.

NASA's twin ESCAPADE spacecraft launched aboard Blue Origin's New Glenn rocket Thursday afternoon from Cape Canaveral, beginning their journey to Mars with arrival expected in 2027.

Learn how to set email reminders on iPhone and Android so you never forget to reply again. Simple built-in features help you stay organized and on top of messages.

Discover how Apple's passkeys revolutionize Mac security by replacing vulnerable passwords with biometric authentication and encryption for ultimate protection.

New survey reveals 78% of parents fear AI scams targeting their kids, yet nearly half haven't discussed these threats. Learn why this dangerous gap exists.

Chrome now autofills passport and driver's license info automatically. Google's latest browser update adds official document support with encryption and user control.

Scammers impersonate Department of Veterans Affairs employees claiming veterans owe money, but real VA communications only direct to VA.gov or official channels.

The AltoVolo Sigma hybrid-electric aircraft flies 500 miles at 220 mph while operating 80% quieter than helicopters, featuring safety systems and compact design.

Google search scam alert: fake customer service numbers can give scammers remote control of your phone. Learn how to spot these traps and protect yourself.

Electric vehicles overtake gas cars in total CO2 savings after just two years of driving, with emissions benefits growing over time as power grids get cleaner.

Louvre Museum reportedly used "Louvre" as password for surveillance system during $100M jewel heist. Learn how weak passwords put even famous institutions at risk.

Bipartisan AI jobs bill from Sens. Hawley and Warner would require companies to report AI-related layoffs and hiring to Department of Labor quarterly.

Joe A. from Shelton, Connecticut, lost $228,000 to a ZAP Solutions cryptocurrency investment scam after his divorce, highlighting rising online fraud.

AI-powered autonomous trucks from Waabi and Volvo target U.S. freight driver shortage with Level 4 self-driving technology and NVIDIA computing platform integration.

Survive flight disruptions with expert travel tips: Book early morning flights, download airline apps and know your refund rights during service cuts.

Apple's iOS 26.1 update delivers major security fixes, performance boosts and enhanced privacy controls for your iPhone. Discover why updating now protects your data.

Succession Planning: Problems Getting Started

Strategic Planning