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| The Succession Source |
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 When should I start thinking about succession planning? What are common obstacles to succession planning? What are the four key objectives of succession planning? Who can help me with developing my succession plan? What are the components of a successful succession plan? What is the best way to involve my family in my succession planning? How do I prepare my children for ownership should they choose to take the business over? What are the main factors to be considered in a business valuation? How far back do valuators look to determine the value of my business? What are the benefits of planning ahead? What is succession planning? Succession planning is the process of the orderly transfer of management and ownership of your business to the next generation of managers and owners. Your business can either be sold to a third party, sold to management or transferred to family members. Back to top When should I start thinking about succession planning? You should start thinking about succession planning ideally at least 5-10 years before you wish to exit the business. However, the key is not the amount of time you dedicate to the process, but that you have an established plan by the time you wish to exit the business. Back to top What are common obstacles to succession planning?
What are the four key objectives of succession planning?
Who can help me with developing my succession plan? It is best to involve all of your key advisors in developing a succession plan. Due to the multi-faceted nature of succession planning it is important that your accountant, banker and lawyer are all made aware of your plans for your business. The best plans are usually those created by professionals collaborating to meet your needs and the needs of the business. Back to top What are the components of a successful succession plan? A successful succession plan should include the following: If you are keeping the business in the family:
What is the best way to involve my family in my succession planning? The best way to involve your family is to begin by having family meetings. Set aside a time and place for you and your family to talk about the business and its future, taking the family concerns into account. Some families find it helpful to have a facilitator to assist in helping family members communicate as effectively as possible. Back to top How do I prepare my children for ownership should they choose to take the business over? The first step is to decide if you wish to allow both active and inactive children to own shares. This can be a source of tension among siblings. The next step is to select successors who will be active as managers. The best way to prepare the next generation for a management position in the company is to develop a successor development plan. This plan should include requirements for management and preparation steps to develop the successor for their new leadership role, often including a requirement to get experience outside the business. Back to top What are the main factors to be considered in a business valuation? The main factors to be considered in a business valuation are the estimated future sustainable cash flow and the volatility of the cash flow. Back to top How far back do valuators look to determine the value of my business? This depends on several factors. If earnings are relatively stable and are expected to remain stable, then a simple average of the last 3 to 5 years would generally suffice. However, if earnings are volatile, then selection of the base period is more complex. A simple average of historical earnings may not suffice and therefore a more detailed analysis and projection of future earnings will be required. Back to top Why do the ultimate transaction prices of business sales sometimes vary significantly from their valuations? Valuations are often prepared without considering the synergies of the business for the buyer. Some buyers have special or strategic reasons to pay a premium for the business. Back to top What are the benefits of planning ahead?
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