What is Succession Planning?
Monday, May 9, 2016
An important part of running a small business is succession planning - vital for the security of your livelihood and of your investment. Having a succession plan in place might be the smartest business decision you ever make, helping to ensure all your work and effort doesn't go to waste and continues to generate value long after you've left the business.
What is succession planning?
Succession planning is the process of finding the people within your business to fill leadership positions in the company. Everyone realises that they won’t be with a business forever, succession planning opens this discussion up by providing a plan for dealing with the change when it happens. This is even more so important for key leaders of a business as their absence from a business will be the most felt, however, all key positions should be included in the plan.
How do I start planning?
Essentially, there are two types of business succession planning scenarios.
- The first is in case of an emergency, such as a business owner suffering an illness that limits them from acting in their full business capabilities.
- The second scenario is more planned and structured, such as in the case of retirement, and perhaps handing over to a family member, or selling the business.
Either way, your business will need to develop succession planning strategies to ensure the business doesn't stop when you do. In fact, in the context of selling the business, this will likely be expected.
To begin your succession planning process, first understand what is required. Any succession planning model should be based on the following:
- Current and future needs - The process requires that you understand the current and future needs of the business. This includes necessary skills, available candidates to fill vacancies, and a risk assessment.
- Timeline – A succession plan should set a timeline and include progress markers for the passing over of corporate knowledge and skills.
- Bird’s eye view - The plan shouldn’t be about individuals. The aim is to adopt a bird's eye view of the business to understand where the problems and opportunities might be in terms of the succession from one operator to another.
It's about transferring momentum, goodwill, networks, and culture in a way that allows for the style and management aims of the former owner to be smoothly transitioned for the purposes of the incoming operator.
The Federal Government has produced a succession planning template which covers the important areas that most businesses will need to address in their succession plans.
These include the following areas:
- What kind of succession is expected? Is this to be a complete handover or only partial? In either case, how has this been decided and how do the parties involved see it playing out? What is in the best interests of the business?
- Are there any conditions to the succession? For instance, what the new operator fails to meet certain sales figures in a given time, or sacks a certain number of staff? What might be consequences of this? Should the out-going owner be brought back in if possible, and if so, how?
- Changes of direction on succession are probably one of the most common issues, so it’s worth thinking about the implications.
- What skill sets are likely to be needed in the future? Many businesses are being obliged to face up to technology in ways they could never have imagined only ten or even five years ago. How might this impact the succession process?
Communication is key
How will the succession plan be communicated? This refers mainly to how the succession plan will be explained to staff and business networks, such as clients and suppliers. In bigger businesses, this could also include a media and public relations strategy. The key here is to ensure the succession process is clear and that all the information is available and easy to comprehend.
The importance of good communication shouldn’t be underestimated. Ensure all stakeholders, internal and external, know what’s happening and what’s expected during this period. This means that alterations in the running of the business are not met with resistance or confusion. Giving everyone involved the feeling that they are part of the success of the plan, will ultimately work to their interests as well as yours - make it easier for the succession plan to be implemented and supported.
What training is needed?
As noted above, new skills may well be required as the business moves forward. In a succession scenario, such skill additions should not be left until the last minute, at which point it may be too late.
Training is particularly appropriate in situations where a new role may come out of the succession roll-out. Bear in mind training might best be conducted before the departing owner moves on so there is time to detail the nuances of that given business prior to the change-over, and corporate memory can be tapped. In-house training time needs to be factored in.
Setting a timeline
It may sound obvious but it is vital that a firm timeline is laid out for a successful business succession. As previously mentioned, it is not a bad idea to set markers along the way, so the progress – or lack of – can be checked and acted on if need be.
Like all real-world deadlines there should be some wriggle room, where possible, to incorporate unforseen changes. Such as what to do if the business leaders reitre early, or stay a little longer.
Finally, what are the risks involved in your succession plan? How will these risks be mitigated? Is it possible, for instance, that a slight fall in momentum will offer competitors some space to take away aspects of your business’s bottom line?
The essential aspect for any succession plan is to ensure the forward movement of the business is not curtailed. That's the central aim of any such plan. Considering known or foreseeable variables, good communication and collaboration between the owner and new-comer will all contribute to a successful handover of the business.
Make an appointment with a Suncorp Bank business banker to discuss what you can do to establish your succession plans.