Introduction to Succession Planning

20 Jan Introduction to Succession Planning

If you’re running a business and you have been for a while, chances are you’re aware how indispensable you are. All the information, the relationships and the experience of the business is in your head, tied up with you and your brain. Then, something unexpected happens and your business is suddenly in crisis. Whether you had a health scare, an offer to buy the business or an increased need for funding, passing along your business to a new owner can be complicated. It’s best to plan ahead.

What is succession planning?

Succession planning is the process of preparing your business to continue on after you, the owner-manager, are no longer working. In some cases, this means passing on leadership roles to a new leader or even to a new organization. It involves training new employees or the new owner in your business, including its culture, processes and specific industry knowledge. If you do a good job, succession planning ensures that your business will still function well even after you are no longer involved.

What are the options?

There are a variety of ways to pass along control of your business. Succession planning usually involves:
Selling or transferring your business to a third-party buyer (competitor, supplier, customer or truly independent third party);

• Selling or transferring your investment in the business to an existing partner in the business;
• Selling or transferring your business to your management team;
• Selling or transferring your business to your employees;
• Selling or transferring your business to a family member;
• Dividing up parts of your business among various successors;
• Taking your business public; or
• Liquidating your business and distributing the proceeds to your shareholders.

The right choice may not be immediately obvious. It’s a good idea to focus on your top two choices and develop a plan for each.
How does it work? Succession planning is a process, not an event. It takes place over months and even years, and it may continually change and evolve until the successor is put in place and you exit the building. Meanwhile, an organization that is engaged in succession planning is good for the business itself and everyone in it. For example, succession planning:

• Prepares the business for a disaster. If you have a heart attack and die tomorrow, it’s likely your business would suffer. Once you’ve selected a successor, however, you know that your successor will step in immediately – and that he or she has the ability and the knowledge to do so.
• Identifies your best leaders. Once you start looking for a successor, you’ll see talent everywhere. Motivated employees are interested in growth opportunities and will step up to meet a challenge.
• Creates structure for training and development. Identifying potential leaders is only the beginning. You’ll want to give them coaching or mentoring opportunities and train them in areas where they have less experience. You can also use these programs to help everyone in the organization to progress.
• Maintains brand identity. Even after you’re gone, you’ll want your business to maintain its reputation. Selecting your own successor – rather than selling off to the highest bidder – is one way to ensure the business will be led by someone who shares your values and interests.
• Forces the organization to plan for the long term. Change often happens unexpectedly. But if your succession plan is part of your organization’s growth, you create opportunities for retiring leaders to share their knowledge and for newer employees to grow and innovate.

To learn more about transitioning your business, contact us.

Joel Rose

With over 35 years of experience, Joel Rose helps families – and their businesses – to prepare for the future. He offers guidance and support to help his clients create estate plans and succession plans that meet the needs of the whole family. Through his extensive professional and personal experience, Joel is known for his compassion and his ability to find a creative solution to meet each family’s needs.