One of the many considerations business owners make when thinking about transitioning into retirement is who will take over for them as leaders of their respective organizations. Succession planning should be an integral part of a business owner’s plans as relatives or key employees may not have the interest or capacity to lead a company. The succession plan is part of a business owner’s legacy and something many of the owners we work with feel passionately about but do not know where to start. The actual succession plan can take a long time to develop so owners should not wait until they are ready to retire to begin the process.
Succession planning can be a complex decision, involving in-depth financial reporting and legal considerations. Succession planning forces business owners to step back and consider all the capable candidates who can successfully operate their business. Succession planning could include relatives, current employees, or someone outside of the company. Each of which would require a different vetting process and bring about unique legal considerations. As planning talks begin, many companies decide to hire a person or organization with prior experience guiding companies through an ownership transition, bringing confidence and peace of mind to stakeholders on both sides.
Below are five tips that make succession planning easier for business owners to navigate.
Consider the daily impact of the business.
If the company’s owner were to retire or abruptly take a leave of absence, how would it affect operations? Would the business survive in their absence? Are the right processes in place to seamlessly allow someone else to step in and run the business right away? Are internal processes well-documented and employees well-trained? Can new leadership come into the organization and have a clear picture of the financials to start making important decisions? Effective internal documentation reduces negative impacts on the day-to-day operations of the business.
Determine the best candidates to fulfill the vacancy.
The next generation of leaders may be family members or someone from outside the organization. Another option owners will consider is a dedicated employee who has a passion for the business and has been with the company for a long time to provide continuity of operations. Whatever the case may be, the company owner needs to have a formal criteria to evaluate the potential skills and accomplishments of candidates. That criteria allows them to recognize who stands out internally and externally, while minimizing the tendencies to make an emotional decision. Concurrently, the owner needs to continue to improve the financial health of the business, so the new leader has the best possible chance to succeed.
Invest in professional development.
Even strong leaders can benefit from outside coaching and consulting. Professional development tools and resources are an investment in a business’ future. Whatever money a company puts into them now should pay off greatly in improving its pool of candidates who are capable of taking over the business for its owner(s). Many universities are offering single classes without applications to help leaders acquire new skills for a rapidly changing business environment. If possible, see if you can find courses in areas of your business that may be experiencing issues and lack people with the necessary expertise.
Implement a succession plan.
Succession planning conversations are a topic that need to be addressed while the owner is still active in the business. While these types of conversations can sometimes be topics people try to avoid because they can be emotional, they are important to the success of the company after current leadership moves on. Once a new leader is decided upon, allow for transition time. Owners should attempt to step away from the business partially to see how their chosen leader handles things. Allow them to run operations on their terms. Owners should only intervene when it’s necessary to provide feedback that helps successors learn more about the inner workings of the company and lead to better outcomes in the future.
Make it official.
Manage all the legalities involved in passing on the company to another person. Involve a legal team to draw up the appropriate paperwork that legitimizes and clearly spells out the terms of the transition of leadership. The sooner in the process, this step is completed, the better. If something were to happen to the owner suddenly, the family could have a legal dispute on their hands. Having documentation and a process outlined minimizes the risk for the family and the business.
Our team at Fates, Bodily, and Parker PLLC helps businesses better understand succession planning from both a strategy and financial perspective. We offer services that prepare companies for their owners’ absences. Contact us today for more information about succession planning for your business. It’s a step in the right direction that gives people peace of mind and reassurance that they’ve made the right decision.
