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Informative Articles

5 Warning Signals Your Business Might Have A Cash Flow Problem
A key reason for business failure is poor cash management. If you don’t pay attention to your daily cash flow, you face extinction; yet so many business people loss site of their cash flow. No matter how fantastic your company’s products are, you...
Building Win-Win Alliances
Many professionals suspect there must be a more efficient way to attract customers. They wonder, "How can I shift from gathering one business card at a time to gathering thousands of customers through one initiative?" Business strategist Debra...
Collaboration, Not Competition
The basic assumptions upon which traditional marketing approaches are built could use some updating. For example, what if we asked whether businesses actually have to compete for customers. Does that seem silly? The answer would be, "Of course, they...
Small Business Q & A: SWOT Analysis Is No Magic 8 Ball
Q: A key investor in my business has suggested that I hire a consultant to do a SWOT Analysis to help plan for the future. I try not to argue with my investors, but I'm not so sure I need to have this done. What do you think? -- Laurie B. A:...
The Project Management Mindset
Project management as a science and art is undergoing key transformations as a result of countless stories of failed projects, cost overruns, and canceling that project that took 2 years of your employee's lives. Needless to say, these scenarios...
 
Succession - Three Tips to Ease The Transition

Succession - Three Ways to Ease the Transition

The succession process can cause havoc in the family business and the family. Especially if the process occurs only once and without a significant investment in planning. Here are three ideas to help ensure success for your family business.
1. Hire the most competent advisors (attorneys, accountants, financial planners and family business experts you can find and afford.

Succession planning is a complicated process and requires different kinds of expertise. Not every professional service advisor has the special training and experience necessary.

For instance, few lawyers, accountants, family therapists and psychologists are specifically trained or experienced in this field. You may wish to consider using family business experts to act as a quarterback for the succession planning process. All too frequently different advisors to the family business owner develop costly and ineffective sequential solutions to the complexities of succession. If someone is selling elevators, escalators are usually never recommended as a means of transporting people within a building.

2. Business valuation is a critical element of succession planning.

There are many reasons to value a business. Unlike socks where one size fits all, one valuation does not fit all situations.

A valuation for sale to the next generation of family has different formulas than a valuation for sale to someone outside the family. Yet a different


formula would be used for estate tax planning purposes.

Depending on the purpose of the valuation, costs can vary significantly. Less complicated valuations done for planning purposes can be very affordable.

Some family business owners value the business every year as part of their strategic planning process. Others use the valuation as a means for determining performance based compensation for key executives (phantom stock) rather than choosing to dilute the ownership of the stock to a non family key executive.

3. Funding is often a hidden or non recognized cost of succession planning.

It is important to understand that the business may need to grow significantly in order to pay the transition costs which include taxes, insurance, professional advisors, setting up trusts and purchasing the business stock. Or, funds that would be available for expansion or to pay out to the family will have to be retained in the business for the transition. Either way, planning for this cash flow requirement will ease the transition.

A good rule of thumb is that the business needs to grow by at least 20 percent more than the normal growth pattern to offset the costs of succession without disrupting the profitability and cash flow of the business.





About the Author

Don A. Schwerzler and David Jones ar Partners at the Family Business Institute - a special resource for family-owned and closely held businesses (http://www.family-business-experts.com).

 

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Strategic Planning Society: Strategy Development and Implementation
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STRATEGIC PLANNING MANUAL
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BPubs.com: Strategic Planning & Business Planning Articles
Business Publications related to Corporate Strategic Planning.
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Strategic Planning Tools
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