Many of America’s twenty-eight million small business owners are either very late in planning for the transition of their companies or have no plan at all.
It is not just small businesses that have this challenge. Thirty-five percent of Fortune five-hundred organizations are private or public companies controlled by a small group of different families. Family owned entities account for a staggering fifty percent of U. S. Gross Domestic Product (GDP), sixty percent of all American jobs and nearly eighty percent of all new jobs created. The performance of the leaders of these businesses determine the fate of the world’s largest corporations, dictate the course of national economies and ultimately influence every person’s standard of living globally.
“Ending the CEO Succession Crisis” in the Harvard Business Review stated “almost half of companies with revenue greater than $500 million have no meaningful CEO succession plan.”
Whether the business is run by a single owner, a family or a corporate Board of Directors, it is clear the failure to plan for the transition of organizations has reached epidemic proportions. What are the key elements of a successful succession plan?
Establish Goals and Objectives for the Transfer
Develop a collective vision, goals and objectives for the succession process. Determine the importance of continuing with the current leadership or bringing in professional management. Review the cash needs of the retiring owners. Identify and retain a team of professional advisors for the entire transition.
Build a System for Making Decisions
Identify who will make what decisions and how they will be made. Construct a method for dispute resolution. Document the succession plan and all decisions in writing. Communicate the plan to all the stakeholders (owners, leadership, family members, employees and stockholders).
Design a Business and Owner Estate Plan
Review any existing estate plans to make sure they avoid delays in the transfer of stock or ownership to the new owners. Produce a buy/sell agreement that properly reflects the value of the business and minimizes any applicable taxes in the transfer. The value of a business is usually based on some type of an earnings capitalization model.
Create the Transition Agreement
Consider all the options. Is it best to allow for an outright purchase, employee buyout, gift/bequest or some combination of these? If the business is to be purchased, consider the financing requirements. Will the money come from an external party, self-financed from retiring owners, deferred payout basis or some other method? What is the timeline for the implementation of the financing?
A great example of developing your employees to take over a business is described in the posting “Employee Development Strategy for Succession Planning” by the Pacific Crest Group. It outlines clearly some very important aspects to take into consideration in your planning.
Pacific Crest Group (PCG) provides professional services that keep your business focused on your critical objectives. We provide strategic Accounting and Human Resource (HR) services created specifically to help you meet your goals. Through exemplary customer service, clearly defined policies and procedures as well as a forward looking perspective, we provide the outsourced solutions that your business needs to grow. A PCG professional is happy to meet with you to discuss solutions for your unique requirements designed to maximize all of your business opportunities.