Less than one third of family businesses survive the transition from first to second generation ownership. Of those that do, about half do not survive the transition from second to third generation ownership. At any given time, 40 percent of U.S. businesses are facing the transfer of ownership issue. Founders are trying to decide what to do with their businesses; however, the options are few.
The following is a list of options to consider:
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Close the doors.
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Sell to an outsider or employee.
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Retain ownership but hire outside management.
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Retain family ownership and management control.
There are four basic reasons why family firms fail to transfer the business successfully:
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Lack of viability of the business.
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Lack of planning.
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Little desire on the owner’s part to transfer the firm.
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Reluctance of offspring to join the firm.
The primary cause for failure is the lack of planning. With the right succession plans in place, the business, in most cases, will remain healthy.
[/trx_accordion_item][trx_accordion_item title=”What should be included in the introduction to my business plan?”]The introductory section of your business plan should give a detailed description of the business and its goals, discuss its ownership and legal structure, list the skills and experience you bring to the business, and identify the competitive advantage your business possesses.[/trx_accordion_item][trx_accordion_item title=”What steps can I take to improve my business cash flow?”]To achieve a positive cash flow, you must have a sound plan. Your business can increase cash reserves in a number of ways:
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Collecting receivables: Actively manage accounts receivable and quickly collect overdue accounts. Revenues are lost when a firm’s collection policies are not aggressive.
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Tightening credit requirements: As credit and terms become more stringent, more customers must pay cash for their purchases, thereby increasing the cash on hand and reducing the bad-debt expense. While tightening credit is helpful in the short run, it may not be advantageous in the long run. Looser credit allows more customers the opportunity to purchase your products or services.
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Manipulating price of products: Many small businesses fail to make a profit because they erroneously price their products or services. Before setting your prices, you must understand your product’s market, distribution costs, and competition. Monitor all factors that affect pricing on a regular basis and adjust as necessary.
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Taking out short-term loans: Loans from various financial institutions are often necessary for covering short-term cash-flow problems. Revolving credit lines and equity loans are common types of credit used in this situation.
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Increasing your sales: Increased sales would appear to increase cash flow. However, if large portions of your sales are made on credit, when sales increase, your accounts receivable increase, not your cash. Meanwhile, inventory is depleted and must be replaced. Because receivables usually will not be collected until 30 days after sales, a substantial increase in sales can quickly deplete your firm’s cash reserves.
Failure to properly plan cash flow is one of the leading causes for small business failures. Experience has shown that many small business owners lack an understanding of basic accounting principles. Knowing the basics will help you better manage your cash flow.
A business’s monetary supply can exist either as cash on hand or in a business checking account available to meet expenses. A sufficient cash flow covers your business by meeting obligations (i.e., paying bills), serving as a cushion in case of emergencies, and providing investment capital.
The Operating Cycle
The operating cycle is the system through which cash flows, from the purchase of inventory through the collection of accounts receivable. It measures the flow of assets into cash. For example, your operating cycle may begin with both cash and inventory on hand. Typically, additional inventory is purchased on account to guarantee that you will not deplete your stock as sales are made. Your sales will consist of cash sales and accounts receivable – credit sales. Accounts receivable are usually paid 30 days after the original purchase date. This applies to both the inventory you purchase and the products you sell. When you make payment for inventory, both cash and accounts payable are reduced. Thirty days after the sale of your inventory, receivables are usually collected, which increases your cash. Now your cash has completed its flow through the operating cycle and is ready to begin again
Cash-flow analysis should show whether your daily operations generate enough cash to meet your obligations, and how major outflows of cash to pay your obligations relate to major inflows of cash from sales. As a result, you can tell if inflows and outflows from your operation combine to result in a positive cash flow or in a net drain. Any significant changes over time will also appear.
A monthly cash-flow projection helps to identify and eliminate deficiencies or surpluses in cash and to compare actual figures to past months. When cash-flow deficiencies are found, business financial plans must be altered to provide more cash. When excess cash is revealed, it might indicate excessive borrowing or idle money that could be invested. The objective is to develop a plan that will provide a well-balanced cash flow.
[/trx_accordion_item][trx_accordion_item title=”Should I keep a cash reserve in my small business?”]You should always keep enough cash on hand to cover expenses and as an added cushion for security. Excess cash should be invested in an accessible, interest-bearing, low-risk account, such as a savings account, short-term certificate of deposit or Treasury bill.[/trx_accordion_item] [/trx_accordion][/trx_block][/vc_column] [/vc_row][vc_row][trx_gap][trx_section dedicated=”” align=”none” columns=”none” pan=”” scroll=”” scroll_dir=”horizontal” scroll_controls=”horizontal” bg_tint=”none” bg_color=”#004F82″ font_weight=”inherit” animation=”none” class=”section-testimonials”][trx_content top=”3em” bottom=”3em”][trx_title type=”2″ style=”regular” align=”center” font_weight=”inherit” color=”#ffffff” icon=”inherit” image=”none” image_size=”small” position=”top” animation=”none”]Motivational Financial Phrases[/trx_title][trx_testimonials controls=”yes” interval=”7000″ autoheight=”no” custom=”no” cat=”133″ count=”6″ offset=”0″ orderby=”date” order=”desc” bg_overlay=”0″ bg_texture=”0″ height=”20em” top=”3em”][/trx_testimonials][/trx_content][/trx_section][/trx_gap][/vc_row]