The Importance of Succession Planning: Preparing to Pass Control of Your Business is a Long-Term Event

 

At its most basic level, succession planning is the process of passing control of a business to others. It’s important to spend time developing a succession strategy—and to start early because it can take months or even years to successfully implement a plan within a business.

Depending on your stage of life, your succession plan may look different. Someone who is early on in their career or business may be preparing a succession plan in the event of an untimely passing, whereas others may be preparing their plan for retirement. 

For those owners who are getting ready to move on to the next stage of their lives, a formal business valuation in preparation for a sale or transfer of ownership may be a step to consider in the planning process. 

One of the more difficult tasks in any succession plan can be identifying the appropriate leader or leaders to take a business into the future. Potential successors can be family members or existing employees. They could come from outside the company, often though, it can be easier to groom someone already in your business.

Mentoring a successor
Once a successor or successors are identified, it takes time to mentor them into a management role. Creating a training plan can help ensure that everyone involved has time to learn the skills, gather the information and practice the leadership roles critical to the future success of the business.

Progress should be evaluated by the business owner and the successor(s) throughout the process, with the understanding that the arrangement does not have to be permanent. If the successor does not seem to be working out with the plan, the owner can inform the successor and choose another candidate that is a better fit to lead the organization in the future.

Keep your bank in the loop
When an owner is engaged and thinking ahead, it gives a bank confidence. Still, many business owners don’t want to think about the business existing without them. They might know they need a plan, but resist putting one in place. That can create problems in a banking relationship.

Banks want to know that business owners have a contingency plan in the event that they’re suddenly unable to operate the business. Banks want to know what happens to the company, who takes over, and if that person or people are capable of taking it over in that event.

When an owner’s exit involves transitioning the business to the next generation or to employees, it’s important for the bank to get to know and build relationships with the next generation of ownership. The relationship between a bank and a business owner is personal, and banks want to know that the people lined up to take over the business know the industry, understand operations and have a vision for the business’s future.

A sale or transfer could also affect existing loan covenants. Companies that are headed toward a sale event are going to put significant emphasis on growth, building up their balance sheet and income statements. That growth could trigger a loan covenant. 

Additionally, in a transition, an owner will likely pull money out of the company ahead of his or her exit. That makes sense for owners because they built the business and have earned their share. A bank can be the source of financing if the newly transitioned business owner needs additional cash flow to maintain the business through the transition.

And, do it early in the relationship
The business’s bank should be made aware of the company’s succession plans very early in the relationship. The relationship began with the current owner, so the bank already knows his or her story and feels comfortable with that lending arrangement. But once a transition plan is in place, the sooner the bank can know the plan and the players in the succession plan, the better. 

Without a succession plan, the business could be put in a tough place if a sudden transition in ownership is made. This situation could disrupt the current lending relationship if the bank doesn’t feel confident in the new owner and his or her ability to run the company.

While it might be tempting to craft a plan and then forget about it, understand that the conditions that exist at the time the plan is created could, and probably will, change before the plan is implemented. It’s a good idea to start assembling a plan at least five years before an exit and revisit the plan if circumstances change that require the plan to be updated.

Regardless of your situation, it is important to consider multiple options and to consult with professionals in the field, such as accountants, lawyers and bankers, to explore the variety of options available in transferring the business to another person or entity.

Kurt Kappa is Chief Lending Officer for First Federal Lakewood.

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  • Next up: Intellectual Property with Calfee Halter Part 3

    Intellectual Property with Calfee Halter Part 3

    This is our final IP segment with Dan McMullen, partner with Calfee Halter, discussing intellectual property and technology firms.

    This is our final IP segment with Dan McMullen, partner with Calfee Halter, discussing intellectual property and technology firms.

    Listen here.

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  • Next up: Intellectual Property with Calfee Halter Part 2

    Intellectual Property with Calfee Halter Part 2

    This is Part 2 of our IP series with Calfee Halter partner Dan McMullen.  Dan shares expertise and guidance reviewing the intricacies of intellectual property for technology firms and outlines strategies and best practices for a firm to manage their IP.

    This is Part 2 of our IP series with Calfee Halter partner Dan McMullen.  Dan shares expertise and guidance reviewing the intricacies of intellectual property for technology firms and outlines strategies and best practices for a firm to manage their IP.

    Listen here.

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  • Next up: Is cold calling dead?

    Is cold calling dead?

    With the emergence of social media and millennials (who some claim aren’t as phone-savvy as prior generations) flooding into the workforce, small business owners might be left wondering whether cold calling has gone the way of the dinosaurs.

    With the emergence of social media and millennials (who some claim aren’t as phone-savvy as prior generations) flooding into the workforce, small business owners might be left wondering whether cold calling has gone the way of the dinosaurs.

    Not so, says Tom Scully, sales consultant and owner of a Sandler Training franchise in Chagrin Falls, though he admits the practice is evolving.

    “Is the act (of cold calling) dead? No,” he says. “But millennials are inundated with all the social media … and they’ll use those vehicles instead of actually picking up the phone.”

    He says that in the last six months his company has received only about two cold calls.

    So what’s taking its place?

    Cold emailing, Scully says.

    “It’s easier to email through email blasts,” Scully explains, adding that he doesn’t “necessarily subscribe” to the concept over cold calling.

    He recommends small business owners still use cold calling to prospect new clients. He says to get a strong cold calling presence—in other words, a talk track. Scully says this needs to be a 30-second commercial that has impact and spawns interest. A good talk track will take a prospective client from having no interest whatsoever to engaging interest within the 30-second time frame, he says.

    “Inside that 30 seconds you want to put things that can feasibly be missing in that person’s world,” he says.

    The same goes for cold emailing, Scully says. Ask yourself: What are the top three issues that someone would want to correct if he or she purchased my product? Answer this in the printed word, he says. Your product or service is the answer.

    Joe Jurevicius, the former Cleveland Browns wide receiver and current co-owner of WashClub Cleveland, said boot leather is one focus of his business, and the staff works every day to make those old-fashioned sales calls—“but in the least annoying way possible,” he says.

    “We try to quickly express our respect and understanding for how busy people are today,” he says. “Luckily for us, we are not selling a complicated product. We keep everything as quick and simple as possible. Even for large corporations laundry should not be complicated.”

    When it comes to making those cold calls and emails, Jurevicius says he doesn’t get disheartened if he hears or reads “no” and encourages other small business owners to feel the same.

    “When trying to sell and you hear the word no, take it as a win,” he says. “A no is better than a hang up. If they are taking the time to say no in a phone call or email we take it as they have at least some interest.”

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  • Next up: Is Email Marketing Going Extinct?

    Is Email Marketing Going Extinct?

    If a recent report by App Annie is to be believed, email marketing may be a thing of the past for younger users. The analysis revealed Android users between the ages of 13 and 24 were 3.5 times more likely to use messaging apps as a primary means of communication, as opposed to those over the age of 45, who were more likely to use email apps.

    If a recent report by App Annie is to be believed, email marketing may be a thing of the past for younger users.

    The analysis revealed Android users between the ages of 13 and 24 were 3.5 times more likely to use messaging apps as a primary means of communication, as opposed to those over the age of 45, who were more likely to use email apps.

    But does this mean email marketing is going extinct?

    The email marketing strategy team at Cleveland design firm Go Media knows there is a wealth of evidence to suggest that simply isn’t true—and we should hold off on the e-mail marketing eulogy for now.

    First of all, the App Annie study is just one snapshot—and it doesn’t even include iOS users. Beyond that, another recent study by Internet Retailer contrasted the earlier report by asserting some 70% of teens prefer to be contacted by email, versus the 7% each who preferred push and text notifications.

    Second, almost everyone still has an email address, and these addresses have so many everyday functional uses. For example: You need an email address to create a social media account. Most college students still use email addresses in everyday communications with professors and fellow students. And any type of e-commerce set-up requires email addresses, too.

    You want to make travel plans? Check your bank account? See about school closings? Order your mom flowers online? Follow up with your boss?

    All of these require email. That means people not only have email addresses, but they are actively using them every single day.

    Not only that, but most carry their email with them wherever they go. It’s estimated that 70% of the global population will have a smartphone by 2020. Meanwhile, a 2015 email marketing study by Yesmail found that over the course of three years:

    • More than half of all emails were opened on mobile devices;
    • brands that more fully embrace responsive web design (which is mobile-friendly) are rewarded with 24% more clicks; and
    • those with responsive web design have a 55% higher click-to-open rate.
    • Direct messaging—whether it’s through SMS (text messages) or some type of app—can be quite useful in your marketing strategy, but that doesn’t mean you have to eliminate your email marketing strategy.

      Not one of these email platforms or messaging apps exists in a bubble. Sure, some people might use one more than another. But savvy marketers (and designers) need to be thinking about how they can use one on top of the other.

      At the same time, consider that your ability to market in apps such as WhatsApp or Snapchat—which mostly involve direct messaging—is going to be somewhat limited. That’s another reason email marketing isn’t going anywhere.

      So, let’s put the dirges on pause for now because email marketing isn’t dying. It is, however, evolving. Those who are going to be successful in their email marketing campaigns are going to need to take a mobile-first approach.

      From a design standpoint, that means we want to think about:

    • How is the campaign going to translate onto a smaller screen?
    • How can we make our designs more simple?
    • Is the call-to-action clear and does it have an easily-tappable button?

    Consensus: Email marketing is alive and well—and not going anywhere. 

    Article provided by the design and marketing experts at Go Media Inc.

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  • Next up: Is Your Workplace Ready for Legalized Marijuana?

    Is Your Workplace Ready for Legalized Marijuana?

    The potential for wide-scale legalization of medicinal and recreational marijuana in Ohio is just a few months away. But that doesn’t mean there aren’t things that small businesses could be doing today to prepare for the possible legalization of the drug. With that in mind, employers should look closely at their business and prepare to make changes as needed. 

    The potential for wide-scale legalization of medicinal and recreational marijuana in Ohio is just a few months away. But that doesn’t mean there aren’t things that small businesses could be doing today to prepare for the possible legalization of the drug.

    With that in mind, employers should look closely at their business and prepare to make changes as needed. 

    First, take a look at your prescription drug policies. If passed, the amendment language requires employers to treat medical marijuana like prescription drugs and it could require employers to accommodate marijuana use in the workplace. Therefore, employers need to take time to review and update their human resource policies and how their business treats the use of prescription drugs. 

    Specifically, employers should look at their substance abuse policies to be certain it is transparently stated that employees are barred from working while under the influence of any state or federal controlled substance or any drug that could impair their performance, including marijuana. This policy should also state that this prohibition is in place regardless of whether marijuana has been certified for an individual’s medical use.

    And a sentence should be inserted into the company’s substance abuse policy that very clearly states that marijuana is an illegal drug pursuant to Schedule I of the Ohio Civil Rights Act and it is also a schedule I illegal drug under the federal Controlled Substances Act.

    Testing for marijuana

    Being ready for legalization isn’t limited to just updating workplace policies, however. If Issue 3 is adopted, employers could be required to adopt broader testing protocols and acquire more sophisticated drug screens. Because marijuana stays in the body longer than other drugs, such as alcohol, it can be difficult to say with certainty whether an employee is actually impaired or not. But, that doesn’t relieve employers for potential liability for the actions of employees that test positive for the drug.  The Occupational Health and Safety Administration maintains it is the employer’s broad duty to maintain a safe workplace, and that includes accounting for substance abuse issues in the workplace.

    It’s important that small-business owners and entrepreneurs not be caught flat-footed should blanket legalization be granted. Addressing business policies and practices today is an essential step toward ensuring a safe workplace and protecting your interests as an employer.

    Stay tuned, we’ll continue to keep you advised on this issue and will be providing education, information and support for you should Issue 3 pass and make marijuana legal. Also, be sure to join COSE on September 25 for the 12@12 Luncheon Series: Marijuana Legalization in Ohio when a group of small business owners will come together to discuss the ramifications of legalization as it impacts small businesses.

    For now, make sure you get the word out to other business owners and urge them to take the time to get out and vote against the marijuana legalization monopoly effort in Ohio by voting NO on Issue 3 on November 3rd!

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