As a business owner, you know how important it is to have a plan in place before retiring or passing your business on to the next generation. Succession planning is as important to small businesses as it is to big businesses. It’s inevitable—you’ll have to move out of the business at some point, whether to retire or to move on to your next venture. Leaving a business, you’ve worked so hard to build a huge step, and it’s something you should always prepare for.
A succession plan is a business strategy that outlines how a business will pass on leadership to the next generation. This plan also sets out financial objectives for the business and key transferrable skills for the successor. As you plan for your company’s future, consider these tips for planning for succession.
- Review Your Business Strategy
Planning the succession to your company involves ensuring that you have the right strategies in place. This article will look in depth at five of the most important concepts to focus on when building your succession strategy.
- Develop Your Leadership Team
- Identify Your Employees’ Skills
- Define Your Key Roles and Responsibilities
- Identify Potential Mentors
- Identify Potential Successors
2. Approach Development Like a Pipeline
As you prepare for your succession, it’s important to approach the process like a pipeline. This approach helps to separate and outline the different phases of your succession plan process, which will ultimately help transition your leadership responsibilities to your desired successor.
Approaching development like a pipeline will help you increase conversions and profits. With your pipeline, you can prioritize your leads, nurture them and convert them into customers. To do that, you must identify which pipeline stages need the most work.
- Integrate Succession with Recruitment
Integrating your succession plan with recruitment processes can lead to a smoother transition for your employees. Succession planning is a strategic process that identifies key personnel and determines how the organization can prepare people for leadership positions in the future.
- Be Transparent About Succession Plans
As a business owner, you know how important it is to be able to pass your business down to future generations. When you plan for a smooth and successful transition, you start with creating a clear, transparent succession plan. This not only ensures that your business continues to thrive but gives you peace of mind that your legacy and values will live on.
- Keep Your Plan Dynamic
When planning for your succession, it’s important to remember that your succession plan will likely evolve. Your plan should address not only your current needs but also the needs of your successors.
When a family transitions from generation to generation, it’s important to consider succession plans that keep the business dynamic. A succession plan, often known as a “business succession plan,” can be put in place when business owners plan to pass their business along to future generations. However, it’s helpful to have a succession plan in place even if you’re not planning to pass the company on to future generations since a succession plan can help your business thrive while ensuring the continuity of its day-to-day management.
- Consider All of Your Options
Many business owners don’t realize that their current business succession plan may not fully meet their needs. Succession planning involves considering all the options available to a business owner and determining which would be best for the business.
- Focus on Skills
Building a succession plan focuses on skills needed in future leadership. Your succession plan will design specific actions to help prepare employees for leadership roles. And it’s key to having an effective succession plan.
- Consider Planned and Unplanned Events
The risks of a recession are very real. Companies that have been in business for decades can find themselves seriously impacted. It is imperative to plan for the unexpected. The trouble is that not all companies plan for this outcome. If you are one of the businesses that have not put plans in place, now is the time.
The best way to ensure that the continuation of the business remains strong is to plan for it, and the best time to plan for it is before a critical illness, or untimely death occurs. The “critical illness” part is important since that illness can spell the end of a business owner’s professional life and force them out of business.
- Think about the Tax Implications of Your Entity Type
If your business is still growing, has no employees, and operates under your name (e.g., sole proprietorship), you could benefit from filing as an entity type other than a sole proprietorship. If you operate a business that is larger than your company size, you may want to consider incorporating. Depending on your business, it could make sense to incorporate as either a C-Corp, S-Corp, or LLC. However, as with most decisions, tax implications are just as important as the operational impact. When deciding on an entity type, you must consider your business and your tax situation.
- Face the Possibility of Customer Attrition
Your company’s customers deserve nothing less than the best. You accomplish that by hiring the right employees, sharing your vision, and using customer service as a core value. However, how do you ensure that your customers will continue doing business with you after you retire? Planning for this succession should be high on your list of priorities since, without planning, your business could experience customer attrition.
- Start Planning Early
Planning for the future is one of your most significant tasks. The benefits are countless: Planning early allows you to make informed management decisions, establish your succession plan, and secure the financial, human, and material resources you need.
- Leverage Third-Party Facilitating
Enlisting the help of a third-party facilitator for your succession plan is a great way to avoid the complexities of the process. Hiring a facilitator can benefit from their knowledge, experience, and expertise. Whether you are just starting on succession planning or you have been planning for years, a facilitator can guide you.