Consider this.Succession Planning
It is inevitable that at some time in the future, each of us will plan for retirement, the sale of a business or death. Each of these events can best be accommodated in an efficient and orderly manner if a documented action or succession plan is in place prior to the event. Almost everyone has heard of some tragic story about the unintended consequences that befell a friend, colleague or relative who died without a will. Yet a will is often the simplest form of a succession plan and it is often overlooked.
In the closely held small business environment, a succession plan can be equated to a business will. The business succession plan establishes how the business ownership transfers, how assets will be cared for or disposed of as well as how and who will operate the business following certain major events. Although there are no guarantees that your plan will function as intended, it is well documented, according to Cary R. Rosenthal, Esq. of Rosenthal & Associates, PC, that only 35% of successful businesses survive the second generation and only 20% survive through the third. No plan for succession lowers the survival rate even more.
Begin any business succession plan by setting a timeline and budget for the process. These two items will be different for everybody, but there is no reason to take more than 6 months for creating the plan. The costs however, depend on too many variables for me to speculate in this space.
Next you might consider reviewing the succession planning software available at www.successionwizard.com. The Succession Wizard site states that the program "identifies potential succession gaps and assists in planning future staffing needs within your organization." It does this by using a powerful, yet user-friendly, interface making it a simple program to use and enabling you to easily and effectively undertake workforce planning. According to Hubbard & Hubbard, Inc., replacing a professional employee can cost over $120,000 and can cost six months of salary and benefits for an hourly employee. The software starts at $199 but will increase according to the transactions required. Not to worry. The software can be downloaded free of charge and used before deciding to purchase. In the trial period, you have a limited number of transactions you can enter but not so few that you can't see the results and reports. This software might be a suitable primer to a more comprehensive succession plan. Another approach is to use one of the many Human Resource firms that specialize in succession planning, such as www.hubbardnhubbardinc.com or www.brintech.com. As you might suspect, this is a seasoned industry full of succession planning specialists. Use "succession planning" as a keyword at www.Google.com to find other firms that are located in your area and that might have prepared plans for others in the same business. This learning step can help expedite the process.
Even if you choose to use the software, the core of the plan will be based on your knowledge of your business. It is imperative to review thoroughly any business valuation data you have on your business or industry, your current financial statements, forecast and budgets, intermediate and long term cash flow and your five- and ten-year strategic plans. Then you will be able to share this information with the other professionals who will help you with this process. Finish off this data refresher with input from your business associates, key employees and family. Don't discount how the actual process of making the business stronger through planning and inclusion can build instant goodwill in your business even before the plan is completed. There is nothing more gratifying to staff than the visible effort to improve and strengthen the business.
Other professionals from varied disciplines will be required to complete and implement your plan. You may feel more empowered about the process and the output if you assemble your own succession planning team. From past experience you can be the team leader but most often it is the family or company accountant or attorney, with supporting roles from a business valuation specialist like www.spardata.com, an independent insurance consultant, and other specialty disciplines demanded by your particular business. For the team to function properly and provide maximum benefit to you, all members of the team should be privy to all financial data throughout the process. Watch for roadblocks and team members who may fall behind with their part of the plan. You will be the spark plug motivating this process.
Finally, the documents you will create to identify who, what, where and when are extremely time sensitive. These documents will require periodic updates to remain relative and functional. Place a recurring event in your electronic calendar so that annual updates become routine. Your goodwill will disappear just as quickly as it was created if the plan does not remain up-to-date.
If the succession plan wasn't on your New Year's resolution list, add it now while there is still time in 2005. Happy Planning!
If you have comments or suggestions, or have an idea for a future computer or business topic, e-mail me at Jimmy@CapitalConsultant.net or Jimmy@InsideAnnapolis.com. Jimmy R. Hammond, CPA, is a resident of Annapolis and a consultant to businesses in Annapolis, Baltimore and Washington D.C.