Business Succession Planning Checklist

Elements of an Effective Plan

Criteria

What do you want to accomplish?

Is your small business a "hobby" or a "business?"

Time Frame

When to start your plan.

Knowing where you are in the small business life cycle.

Players

Who is involved in the decision making?

Who will be affected?

"People support what they help create."

Evaluation

When will you know that you've made it?

Without a plan, you won't know where you're going or how to get there.

Putting the Pieces Together

Define Owner/Founder Goals and Business Goals

What do I want as my business grows?

Do I have a vision of the future?

Have I communicated the vision to others?

Analyze Your Business

Structure

Market

Operation Policies

Personnel

Financial Condition

Create an "Advisory Team" to Help Create/Sell/Implement the Plan

"Two Heads are Better than One -- Three Heads Improve the Vision."

Staff for Strength -- Marketing, Legal, Financial, Insurance.

Develop a Time Line with Key Steps

Keep focused on the ultimate goal -- the perpetuation of your business and personal financial security.

Determine If Owner/Founder Goals Differ from Business Goals

Does the business drive the owner or does the owner drive the business?

Analyze Owner/Founder's Personal Assets, Estate Plan, Life Mission

Do individual goals clash with family or business goals/needs?

Be Mindful of the Possible Outcomes of Your Plan

Who will be affected -- to what extent?

Family members.

Stakeholder(s).

Market.

Employees.

Competitors.

When/How will You Communicate Your Plan?

Information minimizes confusions, distrust, uneasiness.

Examine Your Plan from a Strategic View

Strengths.

Weaknesses.

Opportunities.

Threats.

Create Measures to Evaluate/Provide Feedback

Should be:

Concrete

Specific

Measurable

Create Development Program So Successor Doesn't Begin "Cold Turkey" Passing the Reins

Have a transition period.

Mentor the new leader (s)

Answer Some Questions

Who am I?

What am I?

Why do I exist?

Implementing a Plan to Pass the Business to the Next Generation

Determine Goals/Objectives

Do you want to give up control?

Can you continue to manage daily operations?

Determine What is Best for You and the Business

Is it time to "pass the baton?"

Are you and/or your business being hurt by remaining on?

Examine Goals/Objectives of Family Members

Will they continue to wait for "their time?"

Avoid the Pitfalls

Family tensions.

Lack of personal financial security.

Selecting an inappropriate successor.

Setting up the successor to fail.

What to do When It's Time to Move On

Solicit objective input from advisors, family, business associates.

Set up criteria for successor.

Communicate decision to all parties.

Create clear agreement with successor to address steps, tome lines, financial  considerations.

Begin relinquishment of control.

Set up program to mentor, train, educate successor.           

Implement the financial agreement with the successor.         

Turn business over to successor.

Create vehicle to allow you to "keep in touch."

Planning for the Sale of a Business

What are the Owner's Personal Goals

Consider retirement/using the business to provide security for the family, etc.

Key issue: how does the business fit within those goals?      

Will the owner be able to will/gift the business to the family?

Is owner dependent business income for costs of living?       

Does owner have resources to live independent of the business?

In Most Situations the Owner is Dependent on the Business

Owner must continue to work or it must be sold (cashed out).

Determining Accurate Business Value is Key

Once value is determined, compare to owners goals/needs.

Supplemental steps may need to be taken.

Steps to Take for Any Sale Plan

Determine and groom an appropriate successor.

"Sell" the plan to the appropriate parties.

Determine appropriate sales method:

Cross purchase (agreement between owners);

Redemption (agreement between owners/business);

"Wait and see, buy-sell (Buy-sell is in place but method determined at a later date).

Execute binding buy-sell agreement that can handle all contingencies:

lifetime sale;

sale at death;

sale in case of disability.

If Business Value Cannot Support Goals, Consider Alternatives

Remaining with the business, drawing salary beyond normal retirement.

Issues in this situation:

Will owner pass operations management over/continue to draw salary?

Will owner completely release control of business or interferes with daily operations?

Will management retain dollars for expansion/investment, while passive owner pulls cash from company?

What impact will this have on the business value?

Other Alternatives

Selling company/receive rental income from company land?      

Reaching negotiated agreement/roles passive owner and management will play.

Selling the business through an installment sale.

Owner may draw during working years and invest to lessen dependence on the business value:

qualified plans;

non-qualified plans;

private pension plans (executive bonus);

split dollar arrangements;

non-qualified deferred compensation.

Financial Considerations of a Succession Plan

Succession Plan Must Address Financial and Tax Issues

Without a funded succession plan any approach can be tenuous.

Three Basic Approaches

Sale

Gift/Will

Liquidation

Liquidation is Least Advantageous

Business being dissolved, fewer dollars received than from the business as a going concern.

Dollars come from the value of tangible assets.               

Nothing is received for the value of the ongoing enterprise.

Usually only taken where there is little likelihood of sale/no heirs to take over the business.

Wherever possible, owner should have alternative resources for retirement as the liquidation value may prove insufficient.

Potential Buyers of the Business

Co-owners.

Family members (who also might receive shares as gifts).      

Third party/competitors.

Methods Used to Sell the Business

Cash.

One time payment or installments;

Generally, dollars come from the business or from buyer's assets or salary.

Borrowed funds.

effect same as cash to seller;

buyer must pay interest to a lender (as opposed to interest to the seller under an installment sale).

Sinking fund.

dollars set aside in investment account, allowed to grow.

avoids interest payments with borrowed funds or installment sale.

asset growth taxable/may be insufficient in the event of a premature sale (due to death, disability, etc.).

Insurance.

premium payments can take the place of a sinking fund;

can be permanent or term insurance;

permanent insurance provides tax deferred cash value growth

cash value can be used for a down payment;

"self completing" in the event of a premature death;

disability income buyout can handle disability issues.

 

 

Everyone Requirements To be familiar with the Decision Making Process. We all rely on information, and tools or techniques, to
help us in our daily lives.

When we go out To eat, the restaurant menu is the instrument that provides us with all the information needed to decide what to
purchase and how much to invest.

Operating a Business also requires making decisions using information and techniques - how much stock to maintain, what price to
sell it in, what credit agreements to offer, how many people to hire.

Decision Making Procedure in company is the systematic procedure for identifying and solving issues, of asking questions and
finding answers. Decisions usually are made under conditions of uncertainty. The future isn't known and occasionally even the last
is suspect. This manual opens the door for business owners and managers to find out about the variety of techniques which can be
used to improve your decision making process in a world of doubt, change, and uncontrollable conditions.

A General Approach to Decision Making Process. Whether a scientist, or an executive of a major corporation, or a small business
owner you can gain from boosting your decision making skills. The general solution to systematically solving problems is exactly
the same. The following 7 step method to enhance management decision making may be utilized to study nearly all problems faced by
a business.

State that the problem. A problem first has to exist and be realized. What is the problem and why is it a problem. What's ideal
and how can current operations vary from this ideal. Identify why the symptoms (what is going wrong) and also the causes (why is
it likely wrong). Attempt to specify all terms, theories, variables, and relationships. Quantify the issue to the extent possible.
In case the problem, not accurately and quickly fulfilling customer orders, attempt to determine just how many orders were
incorrectly filled and how long it took to fulfill them.

Establish the Objectives. What are the objectives of the study. Which goals are the most crucial. Objectives are said by an action
verb like to reduce, to increase, or to enhance. Returning to the client dictate problem, the significant goals is: 1) to raise
the percentage of orders filled properly, and 2) to decrease the time necessary to process and order. A sub-objective could
comprise to simplify and streamline the order fulfilling procedure.

Develop a Diagnostic Framework. Next establish a diagnostic frame, that is, determine what methods are going to be utilized, what
types of information are needed, and also how and where the info is available. Is there likely to be a customer survey, a summary
of business documents, time and movement tests, or some thing else. Which are the assumptions (facts supposed to be right ) of
this study. Which would be the criteria used to evaluate the study. What time, budget, or other limitations are there. What type
of quantitative or other specific processes will be utilized to analyze the information. (Some of that will be covered shortly).
In other words, the diagnostic framework establishes the scope and methods of the whole study.

Collect and Analyze the Data. The next step is to gather the information (by following the procedures created in Step 3. Raw
information is then tabulated and organized to facilitate analysis. Tables, graphs, charts, indicators and matrices are some of
the standard ways to organize raw data. Analysis is your critical requirement of audio business decision making. What does the
data show. What facts, patterns, and trends could be viewed in the information. Many of the quantitative techniques covered under
may be used during the measure to determine facts, patterns, and trends in data. Obviously, computers are used widely during this
measure.

Generate Alternative Solutions. After the analysis was finished, some specific decisions about the nature of the issue and its
resolution should have been reached. The next step is to develop alternative solutions to this problem and position them in order
of their net benefits. But how are alternatives best generated. Again, there are some well established techniques such as the
Nominal Group Method, the Delphi Method and Brainstorming, amongst others. In all these methods a group is involved, all people
who have examined the information and analysis. The approach will be to have an informed group suggesting a variety of possible
solutions.

Grow an Action Plan and Implement. Select the ideal solution to this issue but be sure to understand clearly why it's best, that
is, the way that it achieves the objectives created in Step 2 greater than its alternatives. Then develop a productive method
(Action Plan) to execute the solution. At this point an important organizational thought arises - who will be accountable for
seeing the implementation through and what power does he possess. The selected manager ought to be accountable for seeing that all
deadlines, tasks, and reports have been performed, met, and composed. Details are all important in this measure: schedules,
reports, tasks, and communication will be the key elements of any activity program. There are several techniques available to
decision makers implementing an action plan. The PERT method is a method of laying out an whole period like an action program.
PERT will be covered soon.

Evaluate, Obtain Feedback and Monitor. After the Action Plan was implemented to Fix a problem, management must evaluate its own
effectiveness. Assessment Standards have to be determined, feedback channels developed, and monitoring performed. This Measure
ought to be done after 3 to 5 weeks and at 6 weeks. The target is to answer the main point question. Has the issue been solved?

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