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
Alexis limo rentals ..Running a business, whether it be an offline multi-billion dollar... Read More
What do Mark Victor Hansen, Robert Allen, Anthony Robbins, Andrew... Read More
The first step in starting a restaurant is proper planning.... Read More
If you are a manufacturer wanting to use your business... Read More
In Ohio: besides the 3-Cs you should look at Akron,... Read More
There is a story, about a business owner who wasn't... Read More
A recent conversation started with a typical question, "How's business?"... Read More
A focus group is a group of employees or current... Read More
A menu is the foundation of any restaurant; Guests will... Read More
Would you like to jumpstart your online or offline business... Read More
Is there really anything as a problem? Does chaos or... Read More
The new check cashing instant clearing will take some time... Read More
Is there a 'magical' way to exponentially grow your business?It's... Read More
One of the quintessential parts to any business is your... Read More
Human beings are rational agents. Rationality endorses one to take... Read More
I am surprised how few sales professionals, independent consultants, and... Read More
The first task before hiring a contractor for home remodeling... Read More
"Begin with the end in mind," says Stephen Covey in... Read More
There is so much small business information available today that... Read More
Note to Rite Aid and CVS: It's not about the... Read More
We all know that nothing runs without a plan, and... Read More
Note to Northwest Airlines ? It's not about fuel costsFor... Read More
Growing your own small business can be one of the... Read More
Is your business growing as fast and effectively as it... Read More
The Accountability/Alignment Process: Three Steps to an Accountable Organization Generating... Read More
car service from Midway Alsip ..When you start your program to purchase your "ideal" company,... Read More
One of the most important initiatives in the domain of... Read More
David E. Gumpert, author of Burn Your Business Plan, often... Read More
The foundation of any business transaction is the promise of... Read More
How often does your company make a quantum leap forward?... Read More
If you own a pressure washing business one of the... Read More
A focus group is a group of employees or current... Read More
Scenario OneDuring a recent presentation, a business owner was given... Read More
Six Sigma is becoming a proven approach for businesses and... Read More
This will make some people angry as hell, but it's... Read More
"Begin with the end in mind," says Stephen Covey in... Read More
A piano tuner recently moved to Buffalo, NY, and would... Read More
Imagine an office without a desk, or lights, a computer,... Read More
Cassy was an employee of a nonprofit who had been... Read More
Growing your own small business can be one of the... Read More
As a business owner, you've likely created a hurricane plan... Read More
( * - the word 'product' can be substituted to... Read More
Is there a 'magical' way to exponentially grow your business?It's... Read More
1. Largest Selection -One way that you can make your... Read More
When in doubt, cut that out! Yeah, yea, doubting Thomas... Read More
I'm not talking about posting the HBO schedule on your... Read More
Microsoft Great Plains fits multiple services market niche and healthcare... Read More
Does the competition drive you crazy?Are they relentless about taking... Read More
One of the difficulties we face in our industrialized age... Read More
Some analysts credit [Larry] Ellison with anticipating the consolidation in... Read More
Strategic Planning |