Succession plan by nordin1808


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Jack has the choice to choose one of the two sons or the nephew to be his successor to
take over his business. Since he had decided to work for about six more years before
retiring, he has six years to groom his successor. Jack will have to consider all
possibilities before he choose one or all the three to be his successor. If he turns the
business to all three of them collectively, he has to figure out how will he distribute the
stake and responsibilities accordingly among the three. The job function, duties and
accountabilities will need to be determined accordingly.

In order to take over and run the business the successor need to have the capabilities of an
entrepreneur. Some of main characteristics of an entrepreneur are personal initiative, the
ability to consolidate resources, management skills, a desire for autonomy and risk
taking. Other characteristics are aggressiveness, competitiveness, goal oriented
behaviour, confidence, opportunistic behaviour, intuitiveness, reality-based actions, the
ability to learn from mistakes and the ability to employ human resources skills.

An entrepreneur successor is a person of high ingenuity, high creativity and strong drive.
He should be able to provide critical ideas for new product development and future
ventures. A Managerial successor is someone who is to take care of efficiency, internal
control and effective use of resources. This person will often provides the stability and
day-to-day direction needed to keep the business going.

While the successor is form inside, the owner shall focus on the right candidate with the
intent of gradually giving the person operational responsibilities followed by strategic
power and ownership. The important factor is that the owner and the heir must get along
and work together with other family members in the business who must learn to accept
the new future boss.

Jack should know some of the basic succession planning processes and options:

Successful Succession Planning
Succession planning is not an easy process. Discussing succession with your family
brings up difficult issues like aging, loss of control of your business and your financial
affairs, and death. These selling features don’t make succession planning very popular.
However, if one of your life goals is to transfer a viable business to your child or
children, then succession becomes an issue in much of how you do business and how you
plan your life.

There are a number of factors that make within family transfers businesses easier.
Families that have a history of successful transfers have a family model that works for
them. Family business skills like goal setting, open communication, planning for
decision making, using outside advisors, wealth management, training successors, and
retirement planning all help position the family and the business for successful transfer to
the next generation.
Goal Setting: Your long term vision feeds goal setting. Goals then provide direction. If
you can’t see where you’re going how will you ever know if you get there?

Start early: Build some outside investments to support you in retirement. These days,
most within family transfers occur at prices well below fair market value. Some other
save investments may help to ease the cash flow crisis at transfer.

Business Viability: Profitability is critical. It is pointless to talk about transferring an
unprofitable business to the next generation. Parents need income to support them in
their retirement years. The money has to come from active business income (payments
from your children), or from the sale of the business.

Manage the Business Capital: Invest the business profits in the right assets. It is difficult
to get any money back out of high cost overhead items. Keep the business lean and get
some capital invested off the main business.

Tools for Security and Estate Planning: Take advantage of the legal tools that are
available to give you some control of your assets in the event of incapacity or untimely
death. Powers of attorney for property and for personal care allow you to put decisions
you would normally make into the hands of a person you trust in the event you are
incapacitated. An up to date will provides a backup transfer plan in the event of untimely
death. Dying without a will (intestate succession) puts your assets into the control of the
legal authorities for distribution. Do you really want a stranger to decide how your assets
and your family business will be distributed?

Changing Roles: Sole proprietors are used to working independently. Having to share
decision making, especially with one of your children is a real challenge for most sole
proprietors. Once two people have to work together, the working relationship has
changed. Partners are team members who have to talk, share decision making, and who
have to learn how to fight without hurting each other. Family relationships add more
complexity to the new "team" relationship. As a parent, you have to learn to see your
child as an adult and then relate to the adult person you are now working with.

Human Dynamics: Human dynamics and variations in our behaviour add more
challenges to the difficulties of working together effectively. People vary - some are
natural born leaders and communicators, others make great team members but are less
inclined to take the risks associated with leadership, while others just want to work alone.
Learn to step back and assess your behaviour when human dynamics become a problem.
Think before you act. Be diplomatic. Work it out tactfully. Hopefully you find this out
during the time when you are testing your working relationship.

Testing Period: It is wise to set up a short testing period with your child who may become
your business partner. A testing period of two full years where your child works for a
wage and receives a profit share helps to test your working relationship and testing your
successor of accepting further responsibilities. Can the successor be accountable for the
business or can they work together, if more than one successor is in place. If it does not
work up to expectation, then the owner will have to take further drastic steps. Using a
testing period leaves doors open for remedial action, if necessary. If the working
relationship doesn’t work out and you have left an escape route, you have protected the
family relationship. The alternative usually means one less family to come over to your
place on festive day.

Communication: Communication skills are of critical importance for the successful
transfer of a viable operation. Jack Schultz’s business is still growing as he still has a
backlog of about five days’ work. Larger businesses require teamwork and coordination.
People can’t read minds, so they have to learn how to work together effectively. Regular
business meetings where communication is open and decisions are made by consensus
(as much as is practical) keep conflict to a minimum. Jack has to see conflicts, if any as a
positive issue towards successful succession of the business.

Words: Watch what you say and how you say it. If you are going to work as part of a
team, don’t hurt your team members with harsh words. Provide constructive criticism,
not abuse.

Train successors: How can a child take over a hia business if they don’t get any training?
You would not want your son or daughter to say: "Dad taught me how to work but he
never taught me how to run a business".

As a parent, you are the mentor, and your child is the young entrepreneur and potentially
your future business partner. Young entrepreneurs need to learn how to make good
decisions and how to seek out advice they can trust. They need skills in strategic
decision making, planning, communications, capital investment decisions, credit
management, cost control, marketing, employee relations, and then they need to have the
production skills that fit their business. These days the business skills need to be better
than the production skills.

Other options : They should work for someone else to experience what being an
employee feels like. They should learn that other people make mistakes, but they learn
from them. They will discover that Mom and Dad have their own biases and fears. Let
them experiment with another enterprise (with a fixed budget) and they will experience
stress, success, failure, rationing limited capital, and critical decision making.

Train yourself for retirement: The "retiree" has to find a balance between being available
to help and being critical to the operation. If you want freedom, you cannot afford to be
critical to the day to day goings on of the operation. Here are some other points to keep
in mind: stay active, and take care of your hearing and sight; explore other interests or
enterprises; take up dating again (with your spouse); stay technically up to date with the
changes in your industry; and try to maintain a positive attitude - tell your child what they
do right. Keep yourself physically healthy and mentally sharp - you will live longer and
be a much happier person to live with.
Business Agreements: Once you’re sure that you want to work together, the working
relationship should be formalized by a business agreement. The issues addressed by the
business agreement are as follows:

   Who is involved?
   Who owns what assets at what values.
   How decisions are made - monthly meetings, by consensus of all partners
   Banking and income distribution
   Areas of responsibility
   Access to information (like records and financial statements)
   Use of business assets as security for personal liabilities (should not be allowed)
   Conflict resolution - mediation, arbitration
   Getting out - buy-sell agreements and contingency planning

Professional Advisors: Most business transfers will involve the following professionals -
an accountant, a lawyer, a banker, a financial planner, and your management advisor.
Professional advice can be costly, but with family business being worth several hundreds
of thousands of dollars these days, you want your business transfer to be handled
properly, with a minimum amount of tax. Don’t be afraid to modify your plan in the
middle of the transfer process, or to change your mind about the type of business
structure you choose. It’s your business and your situation.

Jack to work as a partner with his successor. The basis is to run parallel before handing
over fully and permanently.

Identify and briefly describe four characteristics you would expect to find in a
successful manager of this type of venture.
The characteristics required for this business may be briefly described as follows:
1. Knowledge of the business. The person going to manage and run this business will
   need to acquire the knowledge of the business. The trick and trade of the operations
   is necessary in order to achieve the bottom line. Without the proper knowledge, the
   key man will not be able to contribute effectively towards his business which is to be
   his own thereafter. Knowledge here covers everything including procurement,
   operations, marketing, finance, tax and handling of various authorities.
2. Leadership capabilities. The person need to exhibit high leadership qualities as this is
   not a big company where he can depend on a full professional management team for
   suggestion, checking and follow up. He needs to be aggressive, high in creativity and
   strong drive to face the challenges ahead. In this particular business, the person to
   lead must be a strong leader to manage the other two family members.
3. Ability to plan. This person must be able to plan and organise the operations,
   functions, budget and human resources. Business plan is always a sensitive matter at
   all times in order to stay in business and also a set for future expansion. The manager
   should be able to execute the business plan within the limited resources available. He
   should be sensitive not to effect the bottom line negatively. The manager should have
   the personality of a starter and a finisher. Things that he planned and take-off should
   be completed successfully, with proper review along the process.
4. Enthusiasm about the business. The person should have high enthusiasm on the
   enterprise he is to take charge. He should have the confidence to succeed in order to
   start and take responsibility of the enterprise, to keep the firm going.

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