Operating and growing a business is engaging and demanding. Business owners often become consumed with the day-to-day operations of their company, leaving little time and energy for planning for the future. Eventually, companies change hands; through retirement, transferring of ownership or death. Succession planning is a way to prepare for the future, making transitions smoother and maximizing financial rewards for business owner(s) and/or their heirs.
What is succession planning?
Succession planning is the process of identifying the critical positions within an organization and developing action plans for individuals to assume these positions. It’s a business strategy used to pass leadership to an employee or group of employees. Succession planning ensures the continuity of a company’s success in the future.
Why do you need a succession plan?
Planning for the future of a company has many and varied benefits. Succession planning:
- prepares the way for the change of leadership in a company. The right leaders make a difference in the success of an organization. Succession planning ensures the stability of a company and prepares it for growth and change by planning who will lead the organization in the future.
- helps a company survive unforeseen events such as death, illness, personal problems, abrupt resignation, arrest, etc. It puts a strategy in place for filling important leadership roles.
- encourages company owners to think long term. Rather than focusing only on weekly meetings and quarterly earnings, succession planning forces you to think about your company’s future.
- motivates communication. Talking about the future promotes communication between departments and/or employees, improving how everyone works together on a daily basis.
- saves money. Being unprepared for a sudden vacancy risks incurring significant costs to lure qualified people to your position, on short notice. A documented succession plan saves the costs of hiring outside people for key leadership roles.
- keeps staff motivated. Succession planning sends a positive message to staff as they are considered for future leadership positions. It increases confidence in a company and motivates the best efforts of employees.
Common problems with business succession planning:
There are a number of issues and problems to be wary of when planning for the succession of your business.
- Lack of Strategy: Make sure you identify your company goals and priorities and that your succession plan lends itself to achieving these. Your plan needs to be a cohesive, overall strategy.
- Ambiguity: An effective succession plan provides clear, well-defined guidance for a smooth transition. It identifies key positions and how they will be filled. If it is to be functional, it must be detailed.
- Procrastination: Many business owners find it difficult to find the time and energy to create a succession plan. Thinking about their mortality, disability and/or future sale of their company seems impossible. Get the process started by bringing in outside help to coordinate the complicated factors associated with preparation for the future. Let the experts (accountant, lawyer, banker, advisor, etc.) help formulate the plan.
- Choosing successors by gut rather than data: When choosing successors for key positions in your company, consider performance scores, number and quality of projects completed, engagement survey scores and supervisory/leadership experience. Be careful of making succession decisions solely based on your attitudes and beliefs. These are formed by experience and the experience of any individual is limited.
- Making assumptions about your talent: Make a point of understanding the skills, talents and goals of those in your organization. Empower employees to chart their own career development within your business, giving them a sense of control over their careers. Steer clear of assuming you know what they want and whether they’re interested in taking over a leadership role in the future.
- Forgetting company morale: Discussion of succession can have a negative impact on morale, lead to fear regarding the future of the company and create jealousy and competitiveness. Be straightforward about the process of planning for the future of the company. Encourage discussion and collaboration. Allow employees to air concerns and give them time to get on board with the plan. Make the process simple and open.
- Ignoring retention of candidates: It’s important to retain those you are training to lead one day. To fend off head hunters and motivate future leaders to stay with your company, offer development opportunities, training incentives and mentoring. Be clear about why and for what role you have selected them.
- Considering only executive positions: If you are advancing an internal candidate to an executive position, you will need a competent employee to fill the vacancy you produce. Create a comprehensive strategy to fill executive and middle management positions. This helps avoid issues, making your plan stronger.
- Thinking succession planning is complete: Because companies are constantly changing (new products/services, new employees, new markets, additional layers of leadership), the succession plan you have in place will need to be reviewed and tweaked periodically.
- Failing to support succession planning with technology: Succession planning software (SAP, Succession Wizard, Cornerstone OnDemand, Plum, UltiPro, TalentGuard, etc.) supports a company by providing insight into the capabilities of employees and their succession potential. It empowers HR to identify skilled employees and accelerate their development and enables them to evaluate, monitor, engage and develop existing talent.
- Not maintaining a current, accurate business valuation: Though the succession plan is a means of readying for the future, be prepared to make sudden and challenging choices by keeping a current, accurate valuation of your business. This serves as a benchmark, giving you control and secure data on which to base decisions.
Succession planning is critical to ensuring access to a talent pool for future vacancies. It makes tackling future changes and challenges easier. Align your plan with your goals. Revisit it periodically and adjust as needed. Utilize software to provide data for decision-making and let the experts help ease the process. If you haven’t already formulated one, get started on your succession plan today.
Need help creating a succession plan for your business? Want to avoid the common challenges of succession planning? Contact Cook and Company Chartered Professional Accountants. Our expert staff will help you navigate the complex maze of succession planning, with ease. Whether you operate a sole proprietorship or a sizable corporation with multiple subsidiaries, Cook and Company uses their experience and expertise to help your business. Contact us for a complimentary consultation.