How Effective is Your Succession Plan?
Succession Planning
Succession planning focuses on preparing the business for two purposes:
• business entrepreneur’s planned exit and
• business entrepreneur not being in the business
Quite often, the buyer who purchases your business is not necessarily going to be running the business or having to recruit someone to run the business on their behalf. Having a succession plan in place is vitally important at the time of sale as it shows the buyer who will be running the business. Furthermore, having a succession plan in place virtually assures you of being able to take off for a valued holiday. There are so many benefits of having a succession plan in place within your business.
Specifically, succession planning concerns continuity within leadership and management following an entrepreneur’s exit. In other words, succession planning is a specific cog in the Exit Planning machine. It is important to consider succession planning as an on-going daily operational issue, not just as part of exit planning.
For years now I have been advocating creating a self-sustaining business. What this really means is building your business in a way where it runs itself. Or at least doesn’t require you there to assure that it generates the level of cash flow and profit that you want. It’s the success stage of the growth cycle.
Succession planning is just the last step in the process. Finding that person that will take on the day-to-day role you play in running your business so that you can go off and do other things!
A buyer will pay you more if your business already has a general manager in place to run it! They will pay you much less if they have to go find a manager; train the manager; and then transfer the management responsibility to them. In fact, they’ll probably ask you to stay on and do it as part of the deal. So, if you do it before you sell, you’ll get more when you sell. That’s why you need a succession plan!
So, succession planning is always part of building a business. While exit planning really dependent on how and to whom you plan to transfer the ownership of your business.
Succession planning is an essential part of doing business, no matter how certain your future appears. It's easy to put off planning when everything seems to be going so well, right? Wrong. Now is the time to begin succession planning. Here are some reasons why it can't—and shouldn't—wait:
You can't plan for disaster. No matter how good you and your staff are at revenue projections or economic predictions, no one can truly plan for disaster. Whether it's an unforeseen illness, a natural disaster, or a CEO's decision to suddenly retire, the reasons for having a succession plan in place before it is needed are endless. So while you can't plan for disaster, you can put into place a series of contingencies that will help your company stay afloat if, in fact, catastrophe occurs.
Succession planning benefits the business now. Just as business practices have evolved over the years, succession planning has also grown and changed. It's no longer a plan that can only be accessed when leadership is going to change; a succession plan can be used before its "real" intent is necessary. It can be used to build strong leadership, help a business survive the daily changes in the marketplace, and force executives to review and examine the company's current goals.
Succession planning gives your colleagues a voice. If you're running a family business, the process of succession planning will give family members an opportunity to express their needs and concerns. Giving them that voice will also help create a sense of responsibility throughout the organization, which is critical for successful succession planning. Resist the temptation to solely carry the entire weight of creating and then sustaining a plan.
A succession plan can help sustain income and support expenses. Talking about money should be a priority. People generally don't want to work for free and things don't pay for themselves. A succession plan can provide answers as to what you—and your staff—will need for future income, as well as what kinds of expenses you may incur once you step out of the main leadership role. Ask yourself questions about your annual income and other benefits including health and dental insurance for you and your dependents, life insurance premiums paid for by the company, your car, professional memberships, and other business-related expenses.
Succession planning gives you a big picture. Some companies mistakenly focus solely on replacing high-level executives. A good succession plan can go further, however, and force you to examine all levels of employees. The people who do the day-to-day work are the ones keeping the business going. Neglecting to add them to the succession planning mix could have dire consequences. As you develop your plan, incorporate all layers of management and their direct reports.
Succession planning strengthens departmental relationships. When regular communication occurs between departments you are more likely to experience synergy, which breeds a culture of strength. Make sure that you link your succession planning activities with human resources. After all, HR is about people. By including HR in succession planning, you can incorporate elements like the employee-evaluation process, which can help when deciding whether to fill vacancies with internal candidates.
Succession planning keeps the mood buoyant. Change—a major component of a succession plan—is exciting and can bring a company unforeseen rewards. Still, change can be a source of tremendous stress, especially when people's livelihoods are at stake. As you put your succession plan together, consider its positive effects on the business. Planning for the future is exciting and, if done correctly, can inspire your workers to stay involved and maintain company loyalty. It's true that a plan is often put into place to avert catastrophe, but it's also a company's way of embracing the future—a business strategy that is essential for survival.
Thoughts
1. First and foremost, ask yourself whether your business model can survive without you; if it can’t, fill in the pieces to ensure it can.
2. Get disability insurance; this will ensure that the small business owner’s family has income if the head of the household can’t run the business for a prolonged period.
3. Make sure there is someone at your company who knows how to do your job, whether it’s one person or a combination of several people who are proficient in different aspects of the operation. Cross train different employees so that they are at least familiar with all elements of the job.
4. Make sure your employees will respect your decision; have “A-team” players on your staff that will support your successor.
5. Don’t have anyone who can take over your job? Hire someone who can.
6. Make sure to tell your planned successor he or she is “the chosen one(s)” ahead of time.
7. Think like a big business. Big businesses have multiple contingency plans in place; make sure you do the same.
I hope that you like this provocative thought that is often forgotten in any business.
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