If you’re a business owner, it’s likely you’ve come across the term “succession planning” before.
Succession planning ensures that your business remains operational after the departure of key staff, leadership or you, the owner. Whether it’s staffing issues, ushering in the next generation of leaders or the sale of the business, succession planning ensures that the business keeps on running.
Fewer than 1 in 3 businesses maintain operations into the second generation of the family. And, just 1 in 10 survive into the third generation.
Ensuring your business survives through multiple generations is about setting a plan — and that’s what succession planning is for.
Below, we’ll cover some key parts of succession planning and what they mean for your small business.
What is Succession Planning?
A succession plan ensures your business has a process for dealing with certain scenarios.
So what should a small business succession plan include? Here are the categories: Ownership Succession, Leadership Succession, Cultural Succession and Emergency Succession.
Each category deals with a specific part of the business in order to plan ahead.
As Forbes puts it, you have to ask yourself the following questions:
- What are your goals for the business?
- When do you plan to retire or exit the business?
- Is it important to keep family members in the business?
- Who are the key employees or potential successors? Do they have the skills and desire to lead the company? Do they have the resources to purchase the business?
- How would a transition impact your customers?
Succession planning involves thinking ahead on all these possible scenarios and ensuring there’s documentation somewhere to plan for these contingencies.
Ownership succession planning defines how you hand your business over to the potential new owner(s). This includes ensuring your knowledge and experience are transferred to whomever takes the reins when you retire.
Ownership succession is different from leadership succession. It focuses solely on proprietary ownership transfer, either to another person or to a group of people.
This might include plans for business partners to take over or “buy out” each other’s stakes in the business.
For most small business owners, this one is perhaps the most relevant, as a good offer on your business could come at any time.
Even if you’re not thinking about selling your business right now, you never know what the future may hold. Having a good ownership succession plan in place helps you understand what triggers to look for to sell your business, and then ensuring you value your business accordingly.
The next most important kind of succession planning — and one that’s very popular in the corporate world — is leadership succession.
Leadership succession denotes how senior-level staff is replaced when they retire, leave or are let go. Leadership teams have a wealth of experience and deep knowledge of your business, and replacing them is a much more involved process than with junior staff.
First, leadership succession planning identifies which roles in your business are important. This will usually be the equivalent of roles like COOs or CFOs, or maybe even senior sales members who have a direct impact on your business’s continuity.
Second, leadership succession provides a framework for transferring the knowledge from the senior staff who’s leaving to their successor. This includes both documentation and training for the new candidate to succeed in the role.
Your business is more than the sum of its parts. As we covered in our “Wearing the HR Hat” blog, Organizational Culture (OC) is an incredibly important part of your business. It’s ingrained in the way you and your customers interact.
Much like ensuring that all the hard work you and your staff have put in doesn’t go to waste when you sell your business, ensuring your OC remains customer-focused requires succession planning.
This includes ensuring organizational values are transferred over, that team cohesion and reporting lines aren’t mixed up in the transfer, and that your interactions with customers remain the same.
You want to avoid giving people an excuse to move their business to a competitor, and usually, that excuse is ownership change.
Cultural succession ensures your customers have the same quality of experience engaging with your business as they did before you sold it.
Emergency Succession Planning
Things go wrong, right? It’s why we have business insurance and backup generators.
The same goes for your business. Ensuring you have a process in place in case — knock on wood — you or your senior staff are incapacitated, or else indisposed, will help keep your business running for the short term, at the very least.
Creating a fallback organizational structure is an example of emergency succession planning. It helps staff understand who they need to listen to in an emergency.
Incorporating a plan for a long-term leadership change can also be critical to ensure the business remains under the ownership of the right people.
“An unprepared new management group, or even a poorly managed transition to competent management, can trigger significant loss in value. If leaders want their businesses’ intrinsic value to remain intact for the benefit of their successors, they should begin the planning process sooner rather than later.” — Deloitte.