Succession Planning Is Critical to the Future of Your Business
Building a successful business takes ingenuity, tenacity and vision. And while that vision sets the course for the company’s future while it’s under your leadership, it should also position the business for continuing success when you are no longer at the helm. A succession plan provides a roadmap for transitioning your firm to the next generation of management when you leave due to retirement or other circumstances.
Succession planning is important for businesses of all sizes, for a variety of reasons. It:
- Provides you with an exit strategy aligned with your retirement goals.
- Protects your employees should you become unable to carry out your duties due to unforeseen circumstances or events.
- Enables you to choose the successor or successors who, in your estimation, have the greatest potential for following through on your vision for the company.
- Helps ensure business continuity as the firm transitions to new leadership.
- Gives you the opportunity to work through tax and other financial issues well in advance of the transition.
The sooner you begin developing your succession plan, the better. Give yourself time to iron out the details and chart a path for the development of your company’s future leaders. Even if you don’t plan to retire for many years, you will have the peace of mind of knowing that your vision for the future is clear.
Every business succession plan is different, because every business owner has their own unique priorities and perspectives. Here are some basic steps for designing a plan that makes sense for you and your company:
How to Create a Succession Plan
Think about where your business is todayMuch like writing an effective business plan, developing a succession plan begins with taking a good look at the current state of your business. How does the company operate? Who are the key players? Does most of the decision-making fall on your shoulders, or is there an even distribution of authority?
Your evaluation may cause you to begin looking at things differently. If you personally hold the lion’s share of expertise, connections and authority, for example, you may want to restructure so that your exit won’t leave such a gaping hole for someone else to fill. It may be time to build the strength of your executive team by delegating more authority and focusing on a collaborative model that will fully support your successor(s).
Identify the successor(s) who can take the business where you’d like it to goBe objective as you determine who has the knowledge, drive, skill set and insight to carry on your legacy. Just as importantly, whether your intent is to keep the business in the family or pass it on to key employees, make sure that the individual or team you select truly wants to take the reins. Sometimes parents assume their children want to lead the family business into the future, but that’s not always the case. Have honest, open conversations about the career goals of the individual(s) you are considering, and discuss the opportunities and challenges of leading the business to gauge their level of interest.
Empower your successor(s) to build and lead their own teamOnce you’ve confirmed your successor(s), give them the tools they need to develop their leadership, management and industry expertise. Work with them in creating a written development plan that may include training, mentoring, coaching and regular performance evaluations to keep them on track. Their plan should also incorporate a specific timeline that aligns with your planned exit date. You may choose to delegate certain areas of authority over time, so that they are duly prepared to take over when you retire.
Plan for a smooth transitionMake sure that your succession plan aligns with your wishes to leave the company. Some business owners choose to leave immediately upon transferring the firm, while others stay on for a specified period of time, often in a part-time advisory capacity. Again, candid conversations can help ensure everyone involved is comfortable with the arrangements.
Consult your financial and business advisorsYour advisors can be of tremendous help as you work through the details of your succession plan — everything from valuing your business and setting forth attainable goals, to assessing the tax implications and structuring transition documents. They can also walk you through the pros and cons of various options for transferring your business — a straightforward sale, gifting the business to family members, creating an employee stock ownership plan (ESOP), etc. — and help you determine what is in the best interest of you and your company.
Update Your Plan to Lead Your Team into the FutureMarkets, people and processes evolve over time, so review your succession plan every time you review your business plan, whether that’s quarterly, semiannually or annually. Your plans should always reflect the most current opportunities and challenges. When you dedicate time and resources to building a succession plan, you give yourself and your successor(s) a head start on your company’s future growth. This strategic roadmap helps ensure that when the time comes for you to pass the business on to the next generation, you will be well-prepared for a seamless transition.
This article is for general information purposes only and is not intended to provide legal, tax, accounting or financial advice. Any reliance on the information herein is solely and exclusively at your own risk and you are urged to do your own independent research. To the extent information herein references an outside resource or Internet site, Dollar Bank is not responsible for information, products or services obtained from outside sources and Dollar Bank will not be liable for any damages that may result from your access to outside resources. As always, please consult your own counsel, accountant, or other advisor regarding your specific situation.
Posted: November 22, 2022