Importance of Succession Planning
Hello my fellow entrepreneur,
Did you know that succession planning is important in your business? Why is it important? Because succession planning focuses on preparing the business for two purposes:
I know that my next sentence may sound a little crazy, but it's true. At the time of starting your business, you should have a succession plan considered. It's true. According to Fidelity, "from the first day you start your business, you want to make sure your business plan is coordinated with your succession plan. Many business owners are so wrapped up in their business that they don’t even think about a succession plan until a year or two before they want to retire."
According to The U.S. Small Business Administration, nearly 70% of small business owners lack a real succession plan. Family-owned businesses, for example, may not feel the need to be formal – a huge mistake. If the business entrepreneur suffers a serious injury and that you have no contingency plan, what is going to happen to the business. I am seeing it happen now with one of my friends who has sadly passed away a month ago. Unfortunately, my friend felt that he was too young and that there was no need for a succession plan. No succession plan has led to total chaos.
That’s exactly what a succession plan is: a formal plan to outline who will take over your business and how it will run once you’ve exited the company. A succession plan is something every strategic business should have, and should be written and set aside long before you need it.
Another key point to remember is that your succession plan should be reviewed each year or as soon as there are key personnel movement within your business. A succession plan dated five years ago may not be effective as there may have been significant changes in your business.
In today's blog, i highly encourage you to think about starting your succession planning. Let us take a moment to understand the benefits of succession planning.
Benefits
1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
How to Develop a Succession Plan
A successful succession plan does not need to be a 100 page document. It can be as simple as a four or five page document but it must have the key points mapped out as shown below. The list is not exhaustive but contains the key points to include in your succession plan.
Succession Plan
The Finances
business entrepreneur’s planned exit and
business entrepreneur not being in the business (eg holiday or sickness)
I know that my next sentence may sound a little crazy, but it's true. At the time of starting your business, you should have a succession plan considered. It's true. According to Fidelity, "from the first day you start your business, you want to make sure your business plan is coordinated with your succession plan. Many business owners are so wrapped up in their business that they don’t even think about a succession plan until a year or two before they want to retire."
According to The U.S. Small Business Administration, nearly 70% of small business owners lack a real succession plan. Family-owned businesses, for example, may not feel the need to be formal – a huge mistake. If the business entrepreneur suffers a serious injury and that you have no contingency plan, what is going to happen to the business. I am seeing it happen now with one of my friends who has sadly passed away a month ago. Unfortunately, my friend felt that he was too young and that there was no need for a succession plan. No succession plan has led to total chaos.
That’s exactly what a succession plan is: a formal plan to outline who will take over your business and how it will run once you’ve exited the company. A succession plan is something every strategic business should have, and should be written and set aside long before you need it.
Another key point to remember is that your succession plan should be reviewed each year or as soon as there are key personnel movement within your business. A succession plan dated five years ago may not be effective as there may have been significant changes in your business.
In today's blog, i highly encourage you to think about starting your succession planning. Let us take a moment to understand the benefits of succession planning.
Benefits
1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
How to Develop a Succession Plan
A successful succession plan does not need to be a 100 page document. It can be as simple as a four or five page document but it must have the key points mapped out as shown below. The list is not exhaustive but contains the key points to include in your succession plan.
Succession Plan
- Business & succession details
- Proposed organisation structure
- Key personnel changes
- Registration changes
- Legal considerations
- Insurance
- Succession timetable
- Contingency/risk management
The Finances
- Current value of the business
- Retirement income/payment
- Sale details (when applicable)
- Buyout details (when applicable)
- Taxation
I would love to hear about your succession planning stories. Please leave your comments below.
Cheers,
Peter Adams
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