Succession Planning

Owner:

1. The owner is in their late 60s and expects that his/her children will take-over the running of the business

2. The owner whilst commencing their retirement mode may find it difficult to let go of the day-to-day management

3. The owner becomes risk averse

Children:

1. Children have little or no skills/experience

2. Children ignore advice from staff reporting to them that have better skills and are more knowledgeable

3. Knowledgeable staff will resign if they have little or no respect for the children

4. Children make crucial decisions without proper research and advice

Succession Plan:

1. The lack of a formal succession plan can result in:

2. Arguments between the family members as to who will take ultimate control

3. Loss of knowledge with the resignation of long term senior executives

4. Loss of confidence by the bank

Solutions

1. Skills testing

2. Skills training

3. Consulting

Analysis of skills possessed by the children:

• Need a quantitative measure

• Independent assessment

• Highlights strengths and weaknesses

Questions to be asked:

• Is there a succession plan?

• Is this review being led by the owner, their children or the bank?

What are the drivers?

• Financial literacy

• Performance evaluation

• Revenue

• Gross margin

• Ratios

• Trends

• Balance sheet management

• Cash flow needs

• Increase wealth (or destroy??)

• Strategic plans (long-term)

• How best to identify problems and seek help

• Long-term vs short-term planning conflicts

• Dividends too large?

• Debt vs equity funding

• Variable interest & dividend yields

• Margin management