All business owners/managers strive for a stable, growing, profitable company. They plan, innovate, create, and organize in pursuit of their goals. But, what about the future of the company? Who will take over when the business owner/management retires, sells, or passes? How can owners/managers ensure that the business will survive and thrive? How can they be sure the outcome meets their needs and desires? Succession planning is a large part of the answer.
What is succession planning?
When people hear the term succession planning, they often think of personal wills and handing down money and/or property to family members. But what is a succession plan in business? Business succession planning refers to an exit strategy for business owners/managers, the steps taken to shape the future of the company in ways that meet the owner’s desires and/or needs. If a company owner plans on selling, succession planning enables a successful transition of ownership. If retirement is what an owner chooses, succession planning is aimed at finding the person(s) best suited to take over and identifying and developing a future leader(s). Business succession planning typically involves:
- Assessing current/future business needs according to the company’s strategic plan and their priority goals, projects, and/ or programs
- Identifying individuals whose potential, skills, and talents best help the company meet its needs/goals
- Developing plans to manage gaps in skills and/or capabilities that may occur if a key leader/leaders leave the company
- Cross-training employees/managers to assist in the development of skills, knowledge, and an understanding of the business
- Preparing for future changes and/or emergencies (when the unexpected arises)
- Ensuring smooth business operation should owners/managers/employees retire or leave the company
Business succession planning focuses on more than the senior manager/executive, encompassing all key positions and all functions that require experience, skill, and/or seniority.
What is the importance of succession planning?
The following items illuminate the importance of business succession planning.
- Ensures survival of unforeseen events: Abrupt resignation, illness, death, personal problems, and/or arrest may result in an unexpected vacancy in an important company position. Though you can not foresee these events, your company can plan, prepare, and strategize possible responses to ensure the smooth operation of the business.
- Forces long-term thinking: It’s easy to focus on weekly meetings, quarterly earnings, and yearly reports. Business succession planning forces a company to consider the future, helping plan and create a wise course for the company.
- Promotes communication: Succession planning requires the cooperation and participation of all department heads and senior management members. This promotes communication, improving day-to-day work.
- Saves money: Being unprepared for vacant positions risks your business incurring considerable costs as you search for suitable replacements. Attracting qualified people from their current positions can be an expensive undertaking. Succession planning can save you the cost of hiring outside employees for key roles as you have access to employees prepared for promotion from within.
- Motivates employees: A succession plan informs employees that you are planning for the future, committed to business growth/survival, dedicated to stability, and interested in internal promotion (developing staff for leadership positions). This creates confidence and motivates employees to give their best.
What are the benefits of succession planning?
There are many advantages for employers and employees to having a well-developed succession plan in place.
- Awareness that there is a chance for advancement/ownership empowers employees and results in higher job satisfaction
- Succession planning reinforces employees’ career development
- Commitment to succession planning results in supervisors mentoring employees to develop knowledge and expertise
- Planning promotes tracking of employee value/skill/knowledge/loyalty with the intention of internally filling positions that arise
- Promotes sharing of company values/vision with leaders/employees
- A new generation of leaders is prepared for eventual need(s)
- Reassures investors/shareholders during times of change
The steps of business succession planning:
There are a series of logical, beneficial steps that assist with successful business succession planning.
- Identify possible serious business challenges for the next one to five years.
- Identify employment positions that are critical for supporting business continuity.
- Identify skills, competencies, and knowledge that are critical factors for success.
- Consider high-potential employees, assessing possible future positions.
- Select the skills/knowledge/competencies employees need to be successful in their positions and to meet the business challenges identified.
- Capture the knowledge possessed by individuals before they depart the organization (mentorship programs, personal productivity tools, knowledge maps, manuals, storytelling, interviews, etc.).
- Use targeted career development strategies to create a talent pool of individuals/employees to step into critical positions.
Transferring the ownership and/or management of a business is a professionally and personally delicate process. Without careful planning, a number of issues and/or mistakes may arise. Updating and revising your company’s succession plan regularly is critical. Constantly amend your plan, making changes as your needs/desires change and to meet the current business environment. Smooth transitions are achievable when you’re well-prepared. Talk to your Chartered Professional Accountant. They have the expertise, experience, and knowledge to help create and maintain a successful business succession plan.
Need help with business succession planning? Looking for business guidance and/or advice? Cook and Company Chartered Professional Accountants are based out of Calgary and Edmonton, Alberta, serving clients across the United States and Canada. We provide high-quality assurance, succession, and tax planning services for a variety of privately owned and managed companies. Our detailed and tactful understanding of succession planning and its many parts is available to assist your company. Contact us today for a complimentary consultation.
