Management Succession and Risk Management Strategies

Management
Tutor: None Selected Time limit: 1 Day

A business you familiar with:

Outline the basics of a management succession plan for passing the business on to the individual of your choice

Determine the most appropriate way for that business to minimize its exposure to risk. Explain your rationale.

Jun 7th, 2015

1) Start business succession planning early.

Five years in advance is good. Ten years in advance is better. Many business advisers tell budding entrepreneurs to build an exit strategy right into their business plan. The point is, the longer you get to spend on family business succession planning, the smoother the transition process is likely to be.

2) Involve your family in business succession planning discussions.

Making your own succession plan and then announcing it is the surest way to sow family discord. "Opening a dialogue among family members is the best way to begin the process of a successful succession plan - one where close attention is paid to the personal feelings, ambitions and goals of everyone concerned" 

3) Look at your family realistically and plan accordingly.

You may want your first-born son to run the business, but does he have the business skills or even the interest to do it? Perhaps there's another family member who is more capable. It may even be that there are no family members capable of or interested in continuing the business and that it would be best to sell it. Examine the strengths of all possible successors as objectively as possible and think about what's best for the business.

4) Get over the idea that everyone has to have an equal share.

While this is a nice idea in theory, it may not be in the best interests of your business. Remember that management and ownership are separate business succession planning issues. It may be fairer for the successor(s) you have chosen to run the business to have a larger share of BUSINESS OWNERSHIP than family members not active in the business. Another alternative is to use voting and non voting shares  so that only some of the family shareholders can make decisions on company policy. Or it may be best to transfer both management and ownership to your chosen successor and make other financial arrangements to benefit your other children.

5) Train your successor(s) and work with them.

How can you expect your successor to take over and run your business successfully if you haven't spent any time training him or her? Your family business succession plan will have a much better chance of success if you work with your successor(s) for a year or two before you hand over the reins. For solo entrepreneurs, sharing decision making and teaching business skills to someone else can be difficult, but it's definitely an effort that will pay big dividends for the business.

6) Get outside help with your business succession planning.

Lawyers, accountants, financial advisors - there are many professionals that can help you put together a successful succession plan. There are even companies that specialize in family business succession planning, who will facilitate the process of working through both family and succession plan issues.

(2)

Diversification is a technique that reduces risk by allocating investments among various financial instruments, industries and other categories. It aims to maximize return by investing in different areas that would each react differently to the same event. Most investment professionals agree that, although it does not guarantee against loss, diversification is the most important component of reaching long-range financial goals while minimizing risk. Here, we look at why this is true, and how to accomplish diversification in your portfolio.


Jun 7th, 2015

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