What Is Meant By Business Succession Planning?
In its purest form, business succession planning is simply the transfer of management of a closely held business from the senior generation to the next generation of management.
The Necessity Of Business Succession Planning In Missouri
Business succession planning can be for families where the next generation of the family is now active in the business and is ready to take over. Business succession planning can also be where there is a key group of employees and the senior generation is passing on the business to those key employees of the business, who then become the owners and the successor management of that company.
The Factors That Determine The Necessity Of A Business Succession Plan
A succession plan is all that is necessary. If there is not a succession plan in place and we will discuss exit plans in the upcoming questions. If there is not a business succession plan in place, what happens is when the business owner dies or retires, the business is gone and the value of the business is gone. In order to preserve the value of the business for families and to provide for the next generation of ownership, a business succession plan is necessary for almost every closely held business.
Do Most Small Business Owners Delay The Succession Planning?
Yes, they do. Most small business owners are so busy working day-to-day in the details of the business that they do not sit back and look at the big picture of what they need to do in order to keep the business going. The statistic is that of closely held businesses in the United States, only thirty percent of them make it to a second generation and only ten percent of closely held businesses make it to a third generation. That statistic is caused by the fact that business owners are too busy to do anything but working the business and do not plan for the next generation of management.
When Is It Better Just To Sell A Business?
When you talk about selling the business, first of all, even in business succession planning, the business is often sold because the senior generation has spent their life working to increase the value of the business for their own security. Even when it is the next generation below them that is taking over the business, that next generation of the business is buying it from the senior generation. You may also have a situation where there is not a next generation within the business. There is not a next generation of family or key employees who want to take over the business.
In that case, we are not talking about business succession planning but we are talking about a parallel concept which is business exit planning. Part of business exit planning is working the business in a manner so that when the senior generation is ready to retire, there will be a market of third party buyers out there, so the business owner can receive full value for the business he or she is spent their lives on in building up.
The Best Way To Determine The Successor Of A Business
It can be a very touchy question because many times, particularly in family businesses, there will be more than one child that is active in the family business. For the most part, you can only have one boss. So it is incumbent upon a business owner early to determine who is going to be the person who should be at the top of the succession ring and then to work with numbers of the family so that they understand and are accepting of this.
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