You may have just gotten started or are barely getting going. So why would you need to think about a succession plan early on?
Succession planning is the process of identifying and developing people inside your organization to fill key leadership and ownership positions. It’s also commonly known as transition planning, as you’re looking at how you’ll transition the business to the next leader(s).
Succession planning is important to the sustainability of your business. According to Harvard Business Review, “some 70% of family-owned businesses fail or are sold before the second generation gets a chance to take over.”
For many small businesses, leadership has been in place for a number of years, and with that comes a substantial amount of knowledge that could potentially leave your organization. Further, without a solid plan in place, until the very end, you’re leaving your business’ future to chance.
So how do you get started?
Come up with a plan. Start with the owner, which may very well be you. Talk through what you want your company’s end game to look like. Do you want to sell out for the highest price? Do you want to reward employee loyalty and hand over the company to one of your hard working professionals? Do you want to keep it in the family? And then there’s the question of timing … how soon do you want any, or all, of this to happen?
Then, look at your leadership goals. Where is there talent in your organization? Is there a particular group or individual that has the support of others? Will this succession change your organizational structure? Who do you want to incentivize to stay long term?
Also, remember talent might not present itself in picture perfect form. So do you have a diamond in the rough that will take some mentoring and coaching, but in the end will be a truly great leader for your organization?
Hint: You also need to be thinking about employee retention here. You don’t want to put a lot of time and effort into someone who ends up leaving before the transition. So make sure you think through an employee retention strategy.
Throughout this entire process, make sure you are COMMUNICATING. Ensure you have buy-in from any and all stakeholders in your organization. This will include investors and key personnel.
Make a date with your business advisor. It’s important to ensure you have a plan in place that serves the culture, mission, vision and people of your organization. But it’s also vital to have outside help.
You’ll need a full cast of business advisors to ensure your succession plan is successfully in place. These characters will include:
- Attorney to help you walk through buy/sell agreements and transaction documents.
- Financial Advisor to help you determine that your ownership lifestyle is met, as well as help you raise funds for your buy/sell agreement.
- Tax Professionals to help you understand the tax implications of transitioning your business.
- Appraiser in order to help you value the business for transition, gifting or sale.
- Estate planner, who will help you see past the sale of your business and into retirement.
Be strategic. It’s important to be strategic as you prepare your succession plan and not just look at the current state of your operation. Succession planning should focus on growth, retention of talent and improve processes.
And one final thought … if all of this seems like a lot of work, that’s because it is. So don’t start at the end. Start early so you’re prepared to go forward with the end in mind.