by Zach Painter
If you’re a business owner, then you know the level of hard work and determination it takes not only to get your idea off the ground, but to make sure your business is a success. From budgeting monthly and annual expenses to hiring the right personnel, running a business is a 24-hour job.
One aspect of running your business you likely haven’t considered, however, is succession planning. By having a succession plan in place, you ensure the survival of your business after you’re gone. In the event that something unexpectedly happened to you that prevented you from overseeing your business, what would happen? Would your business crumble, or would it operate fine without you?
Although it might seem grim to consider, these are important questions to ask yourself. Many business owners never face these questions because they’re either too absorbed in the day-to-day tasks of running their business, or they think the day where they will have to eventually pass on their business is too far off to think about.
Either way, having a succession plan in place is important — not only for you, but for those involved in your business, be they co-founders, investors, or employees. Below are some of the benefits of succession planning, along with some practical ways you can start the process.
The Benefits of Succession Planning for Your Business
As a form of contingency planning, succession planning is simply a means to guarantee the continuity of your business, but there are other benefits that come along with it. Here are a few to think about:
It Improves Employee Retention
Larger corporations often implement succession plans so that they have a protocol for filling management and executive roles as needed. This way, important positions are never vacant for too long and business continues as usual. You can do the same for your business by offering a leadership development program to groom internal talent for key positions far ahead of time. By promoting from within, employees are less likely to change jobs because they recognize an opportunity for career growth.
It Gives Your Business a Vision
Another thing to think about is how your business will look in the future after you leave. You can have a hand in this by writing a mission statement. Mission statements give your business a sense of purpose and are often the birthplace of a dynamic and appealing company culture. Studies even show that companies with a strong mission statement increase profitability by 21% over time.
It Prepares Your Business for the Future
Ideally, your succession plan should include the steps to replace not only you, but any key roles in the company. If you have middle management positions, for instance, you should also have a plan in place to replace those employees in the event that something happens to them.
To adequately prepare for these types of contingencies, it’s recommended to name a replacement who could fill in immediately, and to have a training program in place to prepare employees to take on other roles three to six months after you leave. In this manner, you ensure the continuity of your business for years to come.
What to Include in Your Succession Plan
So, what all goes into writing a succession plan? Here is a list of the main items you need to include:
Choice of a Successor
You need to either explicitly name a successor you trust to take over your business for you, or lay out a protocol to seek out the right candidate to fill your shoes.
If you don’t specify who will inherit your business interest when you’re gone, it could wind up in the hands of your family. Usually, business owners write up a buy-sell agreement with a legal expert so that their business interest is transferred to a co-owner or partner.
Type of Business Form
What type of business do you run? Is it an LLC or a sole proprietorship? Each type of business has its own legal regulations dictating how succession planning takes place, so it’s important to look into your situation with a lawyer.
Taxes and Debts
Any outstanding taxes, debts, or unfinished business should be handled before you leave. For instance, do you plan on liquidating the company and transferring the wealth to your family, or do you want to donate wealth to a charity? If you have specific requests, you should lay this out in your succession plan.
If you step down from your position, will you continue to receive benefits from your business, like health care or retirement benefits? If so, this is something you’d want to clarify with a co-founder or business partner before you go.
How to Find Your Successor
Of course, the most important part succession planning is actually finding the successor to manage your business. Ideally, you want to find someone you know or trust, but here are some other considerations to keep in mind when looking for a successor to take over your business:
Identify internal candidates: On average, hiring external talent costs 1.7x more than promoting from within. If you’re hiring internally, you will also save on the time it takes to train a newer candidate who is not familiar with your business.
Consider family members: If you own a family business and want to hire a family member, it’s important to start grooming the person in mind far in advance so you’re intentions are clear; this will help you avoid tension within the family or disputes between members.
Look for multiple candidates: It’s always a good idea to have several candidates in mind. By limiting yourself to one choice, you create yet another contingency in the event that something happens to your preferred choice.
To learn more about succession planning, check out the infographic here.
Photo: Paweł Czerwiński (Unsplash)