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by H2R CPA Team
There’s an old saying regarding family-owned businesses: “Shirtsleeves to shirtsleeves in three generations.” It means the first-generation owner started in shirtsleeves and built the company up from nothing but, by the third generation, the would-be owner is back in shirtsleeves with nothing because the business failed or was sold.
Although you can’t guarantee your company will buck this trend, you can take extra care when choosing a successor to give your family business a fighting chance. Here are seven steps to consider:
1. Make no assumptions. Many business owners assume their son or daughter wants to run the company or that a particular child is right for the role. But such an assumption can doom the company.
2. Decide which family members are viable candidates, if any. External parties such as professional advisors or an advisory board can provide invaluable input. Outsiders are more likely to be impartial and have no vested interest in your decision. They might help you realize that someone who’s not in your family is the best choice.
3. Look at skills and temperament. Once you’ve settled on a few candidates, hold private meetings with each to discuss the leadership role. Get a feel for whether anyone you’re considering may lack the skills or temperament to run the business.
4. If there are multiple candidates, give each a fair shot. This is no different from what happens in publicly held companies and larger private businesses. Allow each qualified candidate to fill a position at the company and move up the management ladder.
5. Rotate the jobs each candidate performs, if possible. Let them gain experience in many areas of the business, gradually increasing their responsibilities and setting more rigorous goals. You’ll not only groom a better leader, but also potentially create a deeper management team.
6. Clearly communicate your decision. After a reasonable period of time, pick your successor. Meet with the chosen candidate to discuss a transition time line, compensation and other important issues. Also sit down with those not selected and explain your choice. Ideally, these individuals can stay on to provide the aforementioned management depth. Some, however, may choose to leave or be better off working elsewhere. Be forewarned: This can be a difficult, emotional time for family members.
7. Work with your successor on a well-communicated transition of power. Once you’ve picked a successor, he or she effectively becomes a business partner. It’s up to the two of you to gradually shift power from one generation to the next (assuming the business is staying in the family). Don’t underestimate the human element and how much time and effort will be required to make the succession work.
Contact H2R CPA at 412-391-2920 or email@example.com if you have questions regarding Succession Planning for your business. Our team would be pleased to provide a complimentary consultation.
by H2R CPA
For some business owners, succession planning is a complex and delicate matter involving family members and a long, gradual transition out of the company. Others simply sell the business and move on. There are many variations in between, of course, but if you’re leaning toward a business sale, here are seven ways to prepare:
1. Develop or renew your business plan. Identify the challenges and opportunities of your company and explain how and why it’s ready for a sale. Address what distinguishes your business from the competition, and include a viable strategy that speaks to sustainable growth.
2. Ensure you have a solid management team. You should have a management team in place that’s, essentially, a redundancy of you. Your leaders should have the vision and know-how to keep the company moving forward without disruption during and after a sale.
3. Upgrade your technology. Buyers will look much more favorably on a business with up-to-date, reliable and cost-effective IT systems. This may mean investing in upgrades that make your company a “plug and play” proposition for a new owner.
4. Estimate the true value of your business. Obtaining a realistic, carefully calculated business valuation will lessen the likelihood that you’ll leave money on the table. A professional valuator can calculate a defensible, marketable value estimate.
5. Optimize balance sheet structure. Value can be added by removing non-operating assets that aren’t part of normal operations, minimizing inventory levels, and evaluating the condition of capital equipment and debt-financing levels.
6. Minimize tax liability. Seek tax advice early in the sale process — before you make any major changes or investments. Recent tax law changes may significantly affect a business owner’s tax position.
7. Assemble all applicable paperwork. Gather and update all account statements and agreements such as contracts, leases, insurance policies, customer/supplier lists and tax filings. Prospective buyers will request these documents as part of their due diligence.
Succession planning should play a role in every business owner’s long-term goals. Selling the business may be the simplest option, though there are many other ways to transition ownership.
Contact H2R CPA at 412-391-2920 or firstname.lastname@example.org for more information related to selling your business, including succession planning, business valuation, tax planning or due diligence. Our team would be pleased to provide a complimentary consultation.
by Joseph M. Delisi, CPA, Principal
Despite the continuing decline in overall paper check usage, check fraud continues to pose a risk for many organizations. Since checks are passed person-to-person on their way to payment, they can easily be stolen, duplicated, altered or cashed illegally.
Are you concerned about check fraud losses at your business? Positive Pay may be the solution for you. It is essentially an insurance policy against unauthorized disbursements from your bank account. It is a service offered by banks for a fee, although some banks are now offering this service at no cost.
Here’s how it works: Positive Pay requires a company to transmit to the bank a file of checks issued each time checks are written. The file submitted to the bank contains the check number, date, amount, and bank account number. When those checks are presented to the bank for payment, they are compared electronically against the list of transmitted checks.
When a check presented for payment does not match the information on the file transmitted to the bank, it becomes an exception item. Before the bank processes the check for payment, it sends an image of the exception item to the client. The client then reviews the image, and instructs the bank to either process the check for payment, or return the check as unpaid. This allows the company to identify fraudulent checks before they are paid by the bank.
Positive Pay is an effective way to institute check fraud protection, stop bad payments, and reduce liability when dealing with a large volume of checks.
H2R CPA is pleased to assist clients in finding ways to protect themselves against fraud. Contact our team at 412-391-2920 or email@example.com for more information. We would be pleased to provide a complimentary consultation.
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