Five Steps to a Strong Succession Plan

February 6, 2012 § Leave a comment

More than 90% of businesses in the United States are family-owned, but fewer than 30% make it to the second generation.  And less than 12% make it to the third generation.  The key reason cited for failure of businesses to transition to the next generation is simply because no business succession plan is in place. In fact, recent surveys show that only 30% of business owners have a succession plan.
Whether your business has been in the family for years or you are building it from the ground up, it is critical you develop a succession plan.  Most experts agree that succession planning should begin anywhere from 10 to 15 years before retirement. Even if you are one of those people who believe you never will retire, a succession plan is still needed in the event something unforeseen happens to you, such as a serious illness, disability or even death.
Here are the five key steps to succession planning:


Identify what’s important to you. This means deciding, at least generally, how you wish to spend the rest of your life as well as what you want to happen to your business. Consider holding a family meeting to engage in an open and honest discussion regarding your goals and objectives. Failure to do so may lead to unfortunate and contentious situations that could tear apart not only your closely held business…and your family as well.

Decide who is most capable of running your company. If you have more than one potential successor, consider giving each candidate responsibility for the part of the business for which he or she is best suited.  Look beyond your heirs for the most competent successor. Sometimes key employees may be a viable option through an Employee Stock Ownership Plan (ESOP). If you cannot think of anyone qualified to assume control, you may be better off selling to a third party.

Develop a mentoring program. Your goal is to ensure that your business will continue to run successfully without you. That’s why it is important to spend time grooming your successor to be sure that he or she has thorough training and quality leadership experience. You should even consider seeking this person’s input in the development of the plan. While mentoring your successors, you should also transition your relationship with your customers and suppliers.

Document your succession plan. With the help of your accountant and attorney, write down every detail of how you would like your company transitioned. Your strategy should include choosing the right amount of insurance, maximizing valuation discounts to reduce the tax implications and developing a buy-sell agreement. Share this document with all interested parties – especially family members. Be sure that your succession plan is in alignment with your other estate planning documents including wills as well as the titling of assets and insurance policies. All too often, a succession plan cannot be implemented as intended because it conflicts with these other items.

Review the plan regularly. Do not file your succession document away and forget about it. Changed circumstances – such as rapid company growth, the departure of a potential successor and even significant changes in tax laws – are some situations that may require your original plan to be updated and revised.

Developing a business succession plan should not be done in a vacuum. It requires communication among your family members as well as the team of financial and legal advisers involved in the process. When developed and implemented properly, it can help provide financial security for you and your family for generations to come.
If you would like more information on assistance in developing your business succession plan, please give me a call at 515-288-3279. 

Kathi Koenig, CPA

Partner – McGowen, Hurst, Clark & Smith, P.C.

Seven Ways Your CPA Can Help Grow Your Business

February 2, 2012 § Leave a comment

As a business owner you already know that growing your business doesn’t just happen by accident.  It takes hard work and patience, a bit of creativity, a little luck…and sound financial insights.  This is where your CPA can help.  The following are different ways MHC&S can assist you in meeting and exceeding your business goals.Image

1.  Budgets and Projections

The key to achieving the financial goals of your company is accountability. The first step is the creation of budgets and projections. The second step is to hold individuals accountable for maintaining those budgets and achieving the company’s goals. Your accountant should help you develop budgets and projections, as well as measurable goals to insure accountability.

2.  Fraud Risk Management

Implementation of solid internal controls is the best way to minimize the risk of fraud, embezzlement and other improprieties within your company.  No one ever hires employees thinking they will be dishonest; however the reality is that employee theft results in a significant amount of lost profits for companies every day, especially in small business.   Establishing and monitoring internal controls for your company will reduce such risks and help maximize profits for your company.

3.  Profitability Enhancement

There are three ways to enhance a company’s profitability: increase revenues, decrease costs, and improve the quality of life of the company owners. When people think of profitability enhancement, they automatically think of a higher bottom line, but what if your accountant came to you and said “I can help you increase your gross revenues and possibly reduce the number of hours you work?” Most people would jump at such an offer. Strategic business reviews can help you identify the factors that impact your business profitability.   

4.  Benchmarking and Results Analysis


You may believe your business methodology is the best. However, what if you became aware that your competitors were operating with significantly higher gross profits, lower operating expenses and higher bottom lines? Most companies would immediately ask “What are we doing wrong?”  Your accountant can be a key resource for specific benchmarks that apply to your industry segment and region.  

5.  Tax Planning

The old adage that “people don’t plan to fail, they fail to plan” is never truer than when addressing tax planning. Tax preparation and tax planning are two distinctly different things.  Unfortunately many business owners do not see their accountant until after the end of their fiscal year.  In many cases this is too late to take advantage of tax planning strategies that could reduce tax liability.  In order to be successful, the majority of tax planning needs to be implemented over the course of the year and monitored regularly. 

6.  Evaluation of Employee Benefits

You recognize that your employees are the primary reason why your company is successful. Therefore, when the company has the opportunity to financially reward its employees, create significant write-offs for tax purposes, and increase overall employee moral, then the employee benefits plan is a win-win situation. Your accountant can help you evaluate your options.

7.  Succession Planning

Most business owners have a good understanding of how their company operates and are confident they will continue to be successful for as long as they are at the helm. However, not all business owners have planned for the company’s continued success after they retire. Whether your intent is to pass your business down to your own children, turn over the operations to key employees or sell your business outright to a third party, you should begin planning this transition. There are many tax saving strategies that will ensure your company continues to operate and provide for your financial security. 

Owning a small business requires a strong commitment and having the right financial resources in place.   Your CPA can help you address your business challenges, navigate the field of financial decisions and provide you with the services needed to grow your business.  At MHC&S we are here to help you reach your goals.

Kathi Koenig, CPA

Partner – McGowen, Hurst, Clark & Smith, P.C.

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