A succession plan is something every business owner needs to prepare for the inevitable – the day you’ll transfer assets and control of your business to a family member, business partner, employee, or outside buyer.
Many business owners put off succession planning for any number of reasons – they’re busy, they don’t like thinking about falling ill or dying, or retirement seems a long way off. But failing to plan for your exit puts you and your business at significant risk.
Having a succession plan means that if life throws a curve ball and you need to step away sooner than expected, you’ll have contingency plans in place. You’ll be grateful to have made the tough decisions and laid them out, step by step, for a smooth and successful transition. So will your successors.
Why start now?
Because succession planning involves complex decisions that can take up to five years to complete, it’s recommended you start early. Here are a few more reasons to start planning now:
- You’ll have enough time to plan effectively for retirement.
- You’ll reduce the risk of conflict among family members and staff and leave your successors with a flourishing business.
- You’ll be able to groom the right team and facilitate any necessary training before your departure.
- You’ll get a better price and conditions when you sell.
- You’ll greatly increase the odds of your business surviving without you.
Part 1: What is succession planning?
Think of a succession plan as a living document that records exactly how you want the next chapter of your business story to unfold – a tool designed to ensure one of your most valuable assets continues to thrive for many years following your departure.
Succession planning is just as beneficial for a small business as it is for a large corporation. Unfortunately, business owners who underestimate the importance of planning often regret it.
Neglecting to choose – and prepare – a qualified successor can quickly destroy a business. Putting off estate planning can lead to unnecessary stress and conflict. And failing to plan well in advance for the sale of your business can result in getting much less than your company’s actual worth.
Business vs. succession planning
Although different in nature and scope, the purpose of a business and succession plan are basically the same: to guide better decision-making that ensures a healthy, profitable, long-lasting business.
Both need to be updated on a regular basis to help you achieve your company and personal goals. And, like business planning, succession planning is an ongoing process designed to mitigate risk – one that only ends when plans are finally set in motion by your departure.
Key planning areas
An effective succession plan addresses every aspect of the business impacted by the owner’s exit, including choosing a suitable successor and leadership team.
Other key planning areas include:
- Finances and wealth management
- Estate
- Insurance
- Taxes
- Legacy
- Retirement
- Business transfer and transition
Tips for success
- Don’t procrastinate! Start planning now.
- Identify human resource issues/concerns (family, staff, partners).
- Consult with key stakeholders.
- Hire a team of financial, legal and business professionals.
- Draft your plan and stick to a timeline.
- Align your succession plans with financial and estate planning.
- Include contingency plans for a sudden, unexpected exit.
- Communicate openly with employees.
- Review and update your succession plan annually, along with your business plan.
Avoid these succession planning pitfalls
The biggest succession planning pitfall, of course, is never getting around to drafting a plan. Once you’re ready to start the process, watch out for these common missteps that can sabotage your efforts.
- Take early note of employees who could be groomed for leadership roles and support their development with training opportunities.
- Don’t let fear of conflict get in the way of making good decisions for your business. This can be particularly challenging for family-owned companies.
- Know where you want your business to be ten years from now. Choose senior management roles for candidates you trust to take your business in the right direction.
- Be transparent when considering potential successors. Meeting with candidates in secret or announcing appointments without a fair process will breed resentment and put your organization at risk.
- Avoid losing key talent for future leadership opportunities by consistently nurturing your staff’s personal growth and professional development.
Want to know more? Don’t miss the next instalment of this succession planning series.
