Bus 521 Business Succession Planning Paper
Assignment 5: Business Succession Planning
Professor William Laing
BUS 521
Strayer University
Business Succession Planning A business succession plan is an important part of planning a business. Without a succession plan the business can fail. A business succession plan is when a business owner has an exit plan. Having this in place secures the future of the business as well as securing the owner a plan in case things turn for the worse. This plan is not something that is planned over night, but takes time and thought that requires strategic planning.
Business Start Up Success and Failure Rate in the U.S. Market There are currently over 27 million businesses in the United States. “Between 60% and 80% of all new jobs created in our country can be attributed to small businesses,” (Small Business, 2011). There were 627,200 new businesses, 595,000business closures and 43,546 bankruptcies (Guide, 2010). Seven out of ten new employer firms survive at …show more content…
least two years and about half survive the first five years. According to the Small Business Administration, roughly half of all startups go out of business within four years due to improper planning, undercapitalization, poor money management and indebtedness (SBA, 2009). These numbers show the importance of small businesses in the U.S. economy. Although many firms could not be save some could have been reversed by being bailed out, wit smaller losses if they had recognized and responded to early waning signs.
Red Flags for a Small Business Failure and Bankruptcies One of the main reasons why businesses fail is because of the lack of planning.
Being able to understand what Good Eats Bakery has to offer the public and also being able to understand the customers. Businesses also fail because the lack of resources to effectively analyze and create financial plans. Financial planning can be challenging and is important to allow to properly estimating expenses and sales. Good Eats bakery has a financial plan that is reviewed by an accountant on a quarterly basis. At the beginning of a new venture it can be easy for a business to over promise and under deliver. Marketing strategies can be too extreme and aggressive which in turn can be a turn off for potential customers. If the company does a great job at marketing their products but does not have the resources such as additional finances, skills supplies and employees to fulfill the needs the company can easily
fail.
Precautions Owner and Management will take to Ensure Success To ensure success for Good Eats Bakery we have taken the time to review all available resources and have decided that the staff hired will have a probationary period and if necessary changes are not made after first year of employment termination or demotion will be one of the options discussed during the annual review. There will also be quarterly meetings with management to discuss results and changes from the accountant’s review that needs to be made or adjusted to ensure that plans are on track. Raises and annual bonuses for management and employees will be based on performance. If the co-owner of the bakery decides to want out they will leave with what they put in and earned. This agreement will be written and signed prior to opening business. We are equal partners and he will still have to be responsible for half of whatever loans that are taken out to open the business. The documents will be explained in detail so the responsibilities of the owner that chooses to be investing with the company. As a result, when an owner decides to leave there are no conflicts.
Protection for Lenders and Investors
When going into business and money is involved lenders want to lend knowing that the funds loaned are protected especially if anything goes wrong. There are programs that help with lender and investor protection. In order to improve this some lenders require borrowers to participate in small business coaching and annual fraud prevention audits. A clause can be added in the loan agreement that will require the business to participate in the program.
Lenders expect owners to agree to certain performance standards and restrictions in order to ensure that your business can repay the loan. Some restrictions are: maintenance of accurate records and financial statements, limit on total debts, restrictions on dividends or other payments to owners and investors, additional capital expenditures, and sale of fixed assets. All these restrictions are ways the lender will secure that their funds are properly utilized and that they can guarantee that they will receive their funds back.
Business Succession Plan for the New Venture Good Eats Bakery has chosen the following succession plan to be implemented if anything were to happen to either owner. In the event that either owner were to pass away or become physically disabled the business will be passed on to the eldest child of either owner. A whole life insurance policy has been purchased to provide a solid foundation upon for the designated successors to build a long-term financial strategy for the business that guarantees a lifetime of protection for the business. The insurance policy will provide the successors with the ability to financially run the business full time for approximately four years for a standard amount each month. If the company needs funds prior to the death of the administrator, it borrows those same funds to manage the business instead of borrowing the money from a financial institution (Hirsch & Shepherd, 2010). The premium will increase in year six and remains leveled for as long as the premiums are paid when due. Each successor will have to provide a written plan that will provide milestones that need to be met. This will be given to any outstanding lender and/or owner. This way proper use of funds can be ensured and the plans are being properly implemented. Coaching classes will also be mandated to ensure they are abreast of any changes and to ensure they know how to continue to maintain the business plan. Successors will be trained while the current owners are operating the business so if anything does happen to either owner they will be able to pickup from where they left. If the successors decide that they are not able to fulfill the obligations as the owners they will be given a few options that must be agreed upon. They will be given the option of liquidating the business assets and selling them to cover the business debts. They can relinquish their responsibilities by selling it to a new owner/operator. Planning for the unknown is important to ensure that the business continue to grow and thrive as it was envisioned. Without the proper roadmap when things fail or something happens to one of the owners the business will die off as well. Succession planning can be intimidating but it is vital to a success of a business because they now have a secure plan as well as lenders feeling confident knowing that an exit plan exists.
References
Hirsch, P. R., & Shepherd, D. (2010). Entrepreneurship (8th ed.) New York: McGraw Hill.
Small Business Administration. (2011). Marketing a new business. Retrieved from http://www.sba.gov/content/developing-marketing-plan
Small Business Guide (2010). retrieved December 10, 2010 from
http://www.toolkit.com/small_business_guide/index.aspx
Professor William Laing
BUS 521
Strayer University
Business Succession Planning A business succession plan is an important part of planning a business. Without a succession plan the business can fail. A business succession plan is when a business owner has an exit plan. Having this in place secures the future of the business as well as securing the owner a plan in case things turn for the worse. This plan is not something that is planned over night, but takes time and thought that requires strategic planning.
Business Start Up Success and Failure Rate in the U.S. Market There are currently over 27 million businesses in the United States. “Between 60% and 80% of all new jobs created in our country can be attributed to small businesses,” (Small Business, 2011). There were 627,200 new businesses, 595,000business closures and 43,546 bankruptcies (Guide, 2010). Seven out of ten new employer firms survive at …show more content…
least two years and about half survive the first five years. According to the Small Business Administration, roughly half of all startups go out of business within four years due to improper planning, undercapitalization, poor money management and indebtedness (SBA, 2009). These numbers show the importance of small businesses in the U.S. economy. Although many firms could not be save some could have been reversed by being bailed out, wit smaller losses if they had recognized and responded to early waning signs.
Red Flags for a Small Business Failure and Bankruptcies One of the main reasons why businesses fail is because of the lack of planning.
Being able to understand what Good Eats Bakery has to offer the public and also being able to understand the customers. Businesses also fail because the lack of resources to effectively analyze and create financial plans. Financial planning can be challenging and is important to allow to properly estimating expenses and sales. Good Eats bakery has a financial plan that is reviewed by an accountant on a quarterly basis. At the beginning of a new venture it can be easy for a business to over promise and under deliver. Marketing strategies can be too extreme and aggressive which in turn can be a turn off for potential customers. If the company does a great job at marketing their products but does not have the resources such as additional finances, skills supplies and employees to fulfill the needs the company can easily
fail.
Precautions Owner and Management will take to Ensure Success To ensure success for Good Eats Bakery we have taken the time to review all available resources and have decided that the staff hired will have a probationary period and if necessary changes are not made after first year of employment termination or demotion will be one of the options discussed during the annual review. There will also be quarterly meetings with management to discuss results and changes from the accountant’s review that needs to be made or adjusted to ensure that plans are on track. Raises and annual bonuses for management and employees will be based on performance. If the co-owner of the bakery decides to want out they will leave with what they put in and earned. This agreement will be written and signed prior to opening business. We are equal partners and he will still have to be responsible for half of whatever loans that are taken out to open the business. The documents will be explained in detail so the responsibilities of the owner that chooses to be investing with the company. As a result, when an owner decides to leave there are no conflicts.
Protection for Lenders and Investors
When going into business and money is involved lenders want to lend knowing that the funds loaned are protected especially if anything goes wrong. There are programs that help with lender and investor protection. In order to improve this some lenders require borrowers to participate in small business coaching and annual fraud prevention audits. A clause can be added in the loan agreement that will require the business to participate in the program.
Lenders expect owners to agree to certain performance standards and restrictions in order to ensure that your business can repay the loan. Some restrictions are: maintenance of accurate records and financial statements, limit on total debts, restrictions on dividends or other payments to owners and investors, additional capital expenditures, and sale of fixed assets. All these restrictions are ways the lender will secure that their funds are properly utilized and that they can guarantee that they will receive their funds back.
Business Succession Plan for the New Venture Good Eats Bakery has chosen the following succession plan to be implemented if anything were to happen to either owner. In the event that either owner were to pass away or become physically disabled the business will be passed on to the eldest child of either owner. A whole life insurance policy has been purchased to provide a solid foundation upon for the designated successors to build a long-term financial strategy for the business that guarantees a lifetime of protection for the business. The insurance policy will provide the successors with the ability to financially run the business full time for approximately four years for a standard amount each month. If the company needs funds prior to the death of the administrator, it borrows those same funds to manage the business instead of borrowing the money from a financial institution (Hirsch & Shepherd, 2010). The premium will increase in year six and remains leveled for as long as the premiums are paid when due. Each successor will have to provide a written plan that will provide milestones that need to be met. This will be given to any outstanding lender and/or owner. This way proper use of funds can be ensured and the plans are being properly implemented. Coaching classes will also be mandated to ensure they are abreast of any changes and to ensure they know how to continue to maintain the business plan. Successors will be trained while the current owners are operating the business so if anything does happen to either owner they will be able to pickup from where they left. If the successors decide that they are not able to fulfill the obligations as the owners they will be given a few options that must be agreed upon. They will be given the option of liquidating the business assets and selling them to cover the business debts. They can relinquish their responsibilities by selling it to a new owner/operator. Planning for the unknown is important to ensure that the business continue to grow and thrive as it was envisioned. Without the proper roadmap when things fail or something happens to one of the owners the business will die off as well. Succession planning can be intimidating but it is vital to a success of a business because they now have a secure plan as well as lenders feeling confident knowing that an exit plan exists.
References
Hirsch, P. R., & Shepherd, D. (2010). Entrepreneurship (8th ed.) New York: McGraw Hill.
Small Business Administration. (2011). Marketing a new business. Retrieved from http://www.sba.gov/content/developing-marketing-plan
Small Business Guide (2010). retrieved December 10, 2010 from
http://www.toolkit.com/small_business_guide/index.aspx