Know the Fundamentals of Succession Planning

Daily Herald (Arlington Heights, IL), July 11, 2016 | Go to article overview

Know the Fundamentals of Succession Planning


Ask almost any business owner and they will tell you they have "considered" succession planning. Yet, most surveys indicate that 50-75 percent of business owners have no documented succession plan. What accounts for the difference?

In most cases, consideration of succession planning consists of some thoughts as to potential owners and rough estimates as to business value, financial needs, and future cash flows. Unfortunately, such an analysis is mostly speculative and is not based on sound financial assumptions and analysis.

A complete, well documented succession plan does not begin with ownership transfer options, that is the last step of the process. A succession plan begins with two fundamental analyses -- future cash flows and valuation of the business to the owner.

At first glance, future cash flows appear to be a simple concept, but it is not. On a macro level, the first consideration is a projected time period -- i.e. based on ages, what time period must the cash flow cover -- 20, 30, 40 years?

At a more detailed level, future cash flows break down into two sections:

(1) Annual cash receipts

Cash receipts consider dividend payout rates, appreciation rates, investment turnover (sales) rates, and federal and state income taxes.

(2) Annual cash requirements

Annual cash requirements is an analysis of current spending and projection of future expenses for items such as health insurance, medical care, and long-term care expenses. Don't forget, depending on the number of years for the analysis, an inflation factor should be applied.

In general, business owners will over estimate investment income and underestimate spending, without including any inflation factor. For those reasons it is important to consult closely with both investment advisers and tax professionals in developing the cash flow analysis. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Know the Fundamentals of Succession Planning
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.