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The owners of companies of all sizes work endless hours to help make their business a success. They plan for slow times, growth, and different economic cycles. But one very important planning element that is often neglected and not accounted for is a succession plan.
A business owner has an obligation to their employees and families to have a succession plan in place. The need for a succession plan arises from a variety of factors such as retirement, illness, career change, or even death.
A succession plan goes much deeper than the owner of a given business. Over the course of time, certain individuals fill very important roles within a company. The point of a succession plan is to have set actions in place to fill these positions, should they become vacant for any reason.
Many companies find themselves scrambling to fill important positions and they often end up empty-handed with the need to train somebody from scratch to fill a position that took years to perfect.
If you are a small business owner, ask yourself this question: if you had a sudden heart attack, do you know who will take your place and run your business? If you survive the heart attack, will you return to a functioning business or one that is in ruins due to your absence? If you work for a larger company, if your CEO died suddenly, do you know who will take his or her place? Issues such as these are often more complex when there are no clear successors who can take over the business.
There are several reasons why it is important to have a well thought out success plan, some you may not even be aware of.
- Taxes. Very few business owners like to pay taxes. With the exception of family, a business is often thought of as one of the greatest life accomplishments of their owners. If the owner dies without a succession plan, the government will be kind enough to step in and take much of the value of the business and leave very little for the business owner’s heirs.
- Risk. If a business owner waits too long to design and implement a succession plan, there is a greater risk that the plan will not meet their goals. The risk that the business will fail along with the health of the owner also increases. A succession plan requires early planning. Businesses always plan for the startup but rarely plan for succession.
- Options. The longer succession planning is delayed, the fewer options business owners have to meet their goals.
- Control. The most important benefit of a succession plan is that it keeps the business owner in control. Not only for their own replacement but for the replacement of key individuals within the work force.
- Value. The value of most small businesses lies within the owner. Simply put, the business owner and the business often die the same day. If this is the case and the family wishes to sell a business after the death of the owner, what's the value? If all the value was the owner, the only value left is the value of the assets. However, with a capable body in place immediately, it is possible for a business to continue without skipping a beat.
Do’s and don’ts
Following are some key do's and don'ts to consider when preparing a succession plan.
- Don't use the past to plan for the future. You need to choose and develop leaders whose skills align with future goals. It is very difficult to change a person’s nature, and it is very important to ensure that the successor to a position or entire business has the capacity to plan for the future.
- Don't only focus on the owner. The best succession planning programs address every core position, not only the owner. If one person moves up, it creates a new hole to fill, and that can ripple through the organization.
- Don't allow employees to become a roadblock. When talented people top out in leadership roles, they can prevent the next generation from moving up. This makes people hold back as the only option felt is that a person is training someone else to take their job away from them. It is perceived as a negative rather than providing the foundation for a growth opportunity. The best companies avoid these roadblocks by creating new positions and giving future leaders room to grow.
- Do make a list. Create a list of key positions that require succession planning. Succession planning is all about a position and not about an individual person. Look at each position in the company and assess the importance of filling the position should a vacancy occur.
- Do define skills. Define the skills needed for each position. In essence, create a job description for each key position and define the skill set, knowledge, and level of experience required to effectively fill the position.
- Do ask your employees. Ask employees what their future goals and objectives are. Often, the only time this question is asked is during a pre-employment interview. Just like company goals and objectives, individual goals and objectives change over time. It is important to understand the vision of your employees. It would not be wise to groom someone to take over the company one day if their goal is to retire in two years or if they wish to pursue other career opportunities.
- Do train. A training program will go a long way. Not only will it help fill a position if it becomes permanently vacant, but it helps fill temporary voids such as maternity, vacation, extended illness, etc. Cross training is actually more important within smaller organizations as the absence of one position tends to have more of an effect.
- Do adapt. You must be willing to review a succession plan periodically. First, evaluate the business model and determine if future goals have changed. If the goals have changed, it is important to define new skillsets where applicable to help reach the new goals and then review the succession plan to ensure it is in alignment with the business plan. If an individual employee is not meeting expectations for future leadership, change the successor.
An important factor to remember is that succession planning does not only involve planning for the worst cases. It involves many moving parts to create a smoothly run business while the owner is very much alive and well. A succession plan can allow the business owner to retire and enjoy the ongoing benefits from a functioning business, or if retirement is not on the table, a succession plan can allow for a business owner to take a less active role within the company and leave the day-to-day operation of the business to a successor.
Regardless of the intent, do not become one of the many businesses caught without a succession plan at a time when they would need one the most.