Seven Tips for Successful Business Succession Planning
Learn how to go about the process of actually creating your succession plan. Read our seven tips to help you create a succession plan for your business.
1. Get an early start. Phillip Hamman, CFA CFP®, managing director with Linscomb & Williams, says that getting a late start is one of the most common mistakes he sees business owners make when it comes to succession planning. “It takes time for a good succession plan to evolve,” he says. “This is true whether the business will be sold to an outside buyer or ownership will be kept within a family or among existing employees.”
2. Clearly define the role and responsibilities of future leadership. Keep in mind that leadership roles may be different in the future than they are today. So give some thought to exactly what your company’s future leader should look like in terms of his or her talents, skills (both hard and soft skills), abilities, and experience.
3. Identify potential candidates for future leadership. Now you can start to look for great leadership candidates. These may be family members or existing employees, such as a high-level executive or vice president. Or you may need to look outside your firm for future leadership.
4. Start training and grooming successor candidate(s). In short, you need to become their mentor rather than their boss. This means sharing with them all of your management and leadership knowledge and experience. “Doing so will require a significant investment of time and energy on your part, but this is essential if you want to prepare your company’s future leader for what lies ahead,” says Hamman.
5. Discuss the financial requirements of ownership with successor candidates. If your successor will be an owner, he or she needs to fully understand the financial commitment involved in ownership before heading down this path. “So talk openly with candidates about this,” says Hamman. For example, will you finance the purchase price or will they need to obtain an acquisition loan or equity financing? Successors need to fully understand the cost and risks of business ownership.
6. Create a succession communication plan. You need a plan for communicating what’s going on with succession with both internal and external stakeholders including employees, customers and vendors. “Not communicating clearly and openly with stakeholders about your succession plans can lead to rumors and misunderstandings that can severely disrupt your business,” says Hamman.
7. Plan for succession of your successor’s job. If your successor will be an existing employee, you need to make sure someone is being trained to take over his or her job when he or she steps in as the company’s leader at some point in the future.