Why it is so important to have a succession plan for your business

Kreston ANZ

Insights

White Papers

White Papers

Why it is so important to have a succession plan for your business

You may not intend to exit your business till you retire but any one of many factors may advance these plans, and it is inevitable that sooner or later you will decide to transfer either the management and control of the business, or both, to someone else. No matter what your intention is now for the future of your business, you can't be sure of what is around the corner.

However, consider what would happen to your business if you, or a key member of staff, had an accident tomorrow and were unable to return to work for a long period of time? Or worse still, never?

Do you have assurance that as key people move on or retire, you have a continuing sequence of qualified, capable people who can, and importantly want to, take over the key posts?

Both of these scenarios, if they were to occur, would leave huge holes in your business capabilities, and could cause degradation of the brand, loss of customers, staff attrition and loss of key talent, fracturing of stakeholder relationships and goodwill – all, or any, causing a gradual decline in the value of the business or possibly failure of the business.

The idea of succession planning can be fraught with misconceptions by many business owners. Don't think of a succession plan as something you only need if you plan to pass the management of the business on to someone else when you decide you want to leave. Or that succession planning applies only to family owned companies or large conglomerates.

In fact there are a number of ways you, as a business owner, could exit the business. There is the unexpected departure due to unforeseen circumstances as mentioned above. Or, you can sell, arrange a management buy-out or buy-in, pass the reins over to a family or employee successor, raise capital by introducing new people to the ownership, merge, franchise, sell off the assets or close the doors.

The benefits of a well-considered succession plan

A well-considered succession plan should be a key part of your business' growth strategy and risk management process. The benefits are many and all are critical to your business' future. The strategies you implement should aim to safeguard your business by enabling you to leave behind:

a legacy of a profitable and sustainable business
a strong brand
solid strategic positioning
an untarnished reputation
clear leadership and direction
a committed team and a good work culture

This legacy will get you a premium price for your business and should attract the right successors. It ensures the business' value is protected and maximised by demonstrating a clearly defined viable future.

Having a succession plan in place also:

establishes and progressively builds-up equity
ensures a smooth transition with less likelihood of disruption to operations
maintains accountability and ensures stability

Why it's critical for your business to have a plan in place NOW

The life-cycle of your business will inevitably change. In the beginning, as the founder, the business couldn't operate without you. But as your business has matured the dependency on you should have lessened. Key staff may hold pivotal roles now. Without them and/or you in these key roles the business would be in difficulty.

A succession plan outlines how the critical roles in your business will be filled in the future; or if there is an unexpected skills and experience loss. You must also look at your business' future goals and the skills that may be needed to secure its longevity.

The key is to have time on your side. Effective succession planning is continuous and it is wise to review it every two years or so, earlier if something unexpected occurs within the company.

What are the basics of a good succession plan?

Your plan needs to be:

clearly thought out
documented
regularly reviewed
attainable
defined by a realistic timetable
structured for continuity
highlighted by measurable milestones
well-crafted so that it identifies and mitigates any risks
able to identify continued strong leadership during and after a change in management and/or ownership
able to show that it has any required funding in place
able to show that the value of the business won't be impacted by risk through any disruption associated by a change in ownership and /or management.

You need to identify your:

organisation's long-term visions, goals and objectives
successors – people who are ready, willing, committed and able to take over responsibilities
key staff skills and developmental needs
successors, who have identified they are willing, able and prepared to take over
required resources, now and for the future

Some important considerations

It is wise to aim at ultimately making yourself redundant. Delegate as much as possible and choose key personnel wisely. Groom them by developing their leadership strengths, management skills, and business knowledge. Involve them in your plans for succession and get their input into developing a sustainable business model.

Ensure you have a contingency plan in place in case the unforeseen happens and your intended successor declines or can't accept the role.

If you run a family business don't presume that a family member is the best choice, or indeed will want to be your successor.

If you decide to recruit externally you will need to spend time mentoring and integrating the new person into the culture of the business. This is essential for the newcomer to gain respect, trust and confidence amongst the rest of the staff.

Your successor should not be your clone - different skills and experiences may assist the business to grow in other dimensions. However your successor must demonstrate a commitment to the same values on which you built your company and the behaviours to support those values.

Be prepared to 'let go' of the steering wheel. Develop a business transfer plan with a timeline for starting the transfer of ownership and management to others.

In conclusion

Implementing a succession plan, and reviewing it as necessary, is an imperative strategy to safeguard your business' viability. It requires considerable time, vision, thought and planning.

Get professional assistance

Kreston Dormers can work with you to enhance your business' performance and profitability. Our focus is on helping you to create and preserve wealth, and cover the key bases of business success. Contact us to speak with a specialist who will offer practical, results oriented solutions to your individual business problems. We take the time and trouble to understand your business and its potential.

Author/Editor: Charisse Gray
Source: www.nswbc.com.au

Contact us