Nine Succession Planning Mistakes Small Businesses Should Avoid
1. Attempt Succession Planning Without Other Strategic Plans. Succession plans define a company's business heirs, but what will they inherit? They will inherit a company with no vision, no strategy to deal with the competition, and no plans for changing the way it does business, if the current owners spend too little time planning for the future. Every firm should have strategic plans to increase its market value.
2. Fail to Create a Market the Company. Too many small and medium-sized business owners operate under the myth that when it comes time to retire, they will simply sell the business, monetize their equity in the company, and retire with a bundle of cash. But that is more of a myth than a reality. Each year thousands of business are listed for sale, and there are no buyers. The current owners need to market their companies and "create demand" for owning the firm. Otherwise, they may not have any choice in selecting successors or a new management team.
3. Procrastinate. There are a variety of reasons firms procrastinate about developing succession plans: too many pressing matters at hand, thinking about passing the company on to a new generation is depressing, there is plenty of time, and the current owners will be around for a long time. Ironically, firms prepare for unexpected expenses by maintaining cash reserves, but most small and medium-sized businesses fail to appreciate that accidents can happen to owners as well.
4. No goals. If firms do not have an end goal in mind, then they are unlikely to achieve it through succession planning. The end goal should address such issues as when is it time to sell or transfer power, what will the current owners do after the transfer, what percentage of the purchase price can be financed, what type of buyer would be good and what type would be bad for the future of the firm, how should the transfer be executed to minimize the tax burden. It is scary to think about succession planning when these key issues have not been addressed.
5. No Independent Valuation of the Firm. It will be hard to attract good buyers or successors unless agreement on a realistic value of the business can be reached. Sometimes the current owners are unpleasantly surprised that the business they have developed and the capital they have acquired is valued much less in the market than they personally value it. The value of the firm may also depend on external events beyond the control of the current owners, and thus contingency valuations may be required.
6. Sell to an Insider Who has Little Funding. For sentimental reasons, many business owners prefer to transfer ownership to a trusted employee who has been with the firm for years. But generally these employees have little funding to acquire a business. In that case, the current owner will want to prepare a deferred compensation plan that will not leave him exiting the firm with no cash.
7. Ignore Training. Many small business fall into the trap of thinking they have to accept their successors as they find them with their existing endowment of skills and experience, take it or leave it. But if key skills and responsibilities are missing from the background of a likely internal successor, then succession planning will enable the firm to train and develop that successor into a better and more qualified person. Training does not require a person to attend formal classes and be tested on comprehension with exams. On-the-job training may be just as valuable, e.g., where a person is given responsibility for the firm's finances or marketing efforts prior to succession. Leadership training courses are rarely worthwhile. The one-size-fits-all, generic leadership training courses are the worst of all. If people have natural leadership skills, these tend to emerge in the course of their daily interactions with people.
8. Keep Succession Plans a Secret. When the staff is left in a vacuum as to who will succeed in running the firm, it creates the impression that the firm has no succession plans. Those eventually who become new owners will be treated with suspicion. Keeping the succession plans secret hinders existing managers and employees from identifying themselves as possible successors. Without a firm commitment or expectation about the future, key personnel may leave the firm.
9. Develop a Succession Plan Once. Some businesses make the mistake of believing a succession plan is the equivalent of writing a will. Once it is written, there is allegedly no need to revise it. But succession planning is a dynamic process that involves training, hiring, internal development, and external marketing. Succession plans will grow stale if they are not periodically updated and revised to address changes in the market place that the firm is currently facing and will face in the future.
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/succession2.htm
More Resources
Unable to open RSS Feed $XMLfilename with error HTTP ERROR: 404, exitingMore Strategic Planning Information:
Related Articles
Regroup - How To Do It And Why It Works
Regroup?is this a new management trend? Not a chance! Regroup is simply an opportunity to end one month's business cycle, recap the performance of your company and outline a plan of success for the new upcoming month. Why does it work? Because it allows each person on your team to assess their performance from the previous month, and make any necessary adjustments for the new month.
Six Key Principles of Corporate Accountability
The foundation of any business transaction is the promise of fair deal. In complex organizational relationships, it is all too easy to lose sight of the existence and terms of this deal.
Home Improvement Construction Project Planning
The first task before hiring a contractor for home remodeling is laying out the details on what exactly you want done. This will ultimately save you time and money, as you will be able to choose the perfect contractor for your construction job, and get the job done correctly the first time.
Fail to plan... or Plan to FAIL??
Running a business, whether it be an offline multi-billion
dollar company or an online part time home business, they
share many similar traits.One of the biggest obstacles I have endeavored to
translate to many, many small business / home business
people, is a very simple phrase.
Microsoft Great Plains in Aerospace & Defense industries - implementation & customization highlights
Microsoft Great Plains fits horizontal markets clientele and in case of Aerospace and Defense industry we'll talk about contractors - parts and subsystems for government contracts. We do not necessarily talk about large corporation, however models described could be implemented for large publicly traded company.
Laying It Out On Paper
You might be thinking to yourself, "Why should I waste my time writing a business plan? I know what (web designers, freelance writers, professional organizers) do!" Knowing intellectually what your industry is all about and pinpointing exactly where you want your business to go are two entirely different propositions.Something happens when you empty vague ideas out of your head and SOLIDIFY them on paper.
Going Self-Employed - A Few Handy Hints
The day you decide to take the plunge and work for yourself will be one of the most life-changing choices you ever make, whether starting a company large or small or as a freelance; from the very first moment of being self-employed, you and you alone will stand or fall by your decisions and actions. You will be responsible for steering your business through all its ups and downs, good times and bad times with no guarantee that everything will turn out right in the end.
Business Strategy Planning Made Easy
Ask Yourself three simple questions that affect your strategy planning..
Resilience
I. INTRODUCTIONThe term resilience, which is of frequent use in the psychotherapy area, has recently started being used in the corporate field.
How Copying the HBO Schedule Can Boost Your Business
I'm not talking about posting the HBO schedule on your website or sending a Xeroxed copy around to all your customers. When HBO came onto the scene they were innovative, fresh, and willing to do things other people were not.
Your Business: Will It Have A Happy Ending?
"Begin with the end in mind," says Stephen Covey in his book Seven Habits of Successful Living. Those who have created a successful business know it does not happen without planning, hard work, and a little luck.
Corporate Contingency Planning
Part 1A few weeks ago I attended a seminar sponsored by Independent Solutions Insurance Inc (Edmonton) entitled "Seminar On Disaster Preparedness", during this seminar I heard stories from individual company owners who told us of their misfortunes and how they coped with their crisis. In both cases these crisis were caused by accident, however, a potential catastrophe nonetheless.
Dotcom Business Plans Archive Project
One of the most important initiatives in the domain of business documentation is that of professor David Kirsch from the University of Maryland, who thought of a dotcom Business Plan Archive - , a project that consists of collecting business plans for posterity. The project was started in 2002, through the Web portal businessplanarchive.
Are You Aware of Planning in Business?
Human beings are rational agents. Rationality endorses one to take up planning in every sphere of life from shifting to a new house to marriage, as well as business.
Top 10 Tips to Create A Business Plan! (For People Who Hate Business Plans)
One of the key challenges for any business is to remain focused and invest resources for maximum pay-off. It's said that 80% of a business's activity accounts for only 20% of total profits.
What is Your MSP?
For many consumers and producers, MSP is an acronym for Manufacturer's Suggested Price. Today, I would like you to consider a different definition for these commonly used letters -Marketing, Sales and Profitability.
Expanding your business in a franchise system
If you are a successful franchise of a large franchise brand or chain, chances are you will wish to expand. The most important thing to do is make sure you are on the most positive terms with your franchisor.
Call in the SWOT Team: Produce More Opportunities to Expand Your Business
Have you ever done a SWOT analysis? No, it's not some dangerous military
maneuver. It's actually a fun and incredibly helpful business development exercise that will give your company focused direction and great marketing ideas -- whether your business is brand new or has been around for years.
Leverage - A Small Step For You /A Big Change For Your Career
Cassy was an employee of a nonprofit who had been at her job 5 years. She came to me because she felt that the organization she was working for didn't value her and was upset because others had been promoted but she had not.
Mastermind Your Way to Success
What do Mark Victor Hansen, Robert Allen, Anthony Robbins, Andrew Carnegie, Henry Ford, Thomas Edison and Ben Franklin have in common?They all leverage the power of the mastermind team.The mastermind works on the concept that two (or more) heads are better than one.
Titanic Precautions
Many movies have been made about the tragic story of the Titanic. Arrogance and ignorance was definitely present during its maiden voyage, which was Titanic's last voyage.