As a business owner, no matter what size or type of business you operate, you must have a succession plan in place for the inevitable day that you decide to transfer both the management and control of the business to someone else.
This may occur because you have planned strategically to leave the business; and this may happen concurrently with management succession, or much later. Alternatively you may have to exit the business in a hurry due to ill health or unforeseen circumstances.
However transferring the management and control of the business does not necessarily mean a complete exit from the business. You might remain for a period of time as an advisory consultant to the new owner.
The concept of succession planning however is fraught with misconceptions. Many business owners think of a succession plan as something they need only if they plan to pass the management of the business on to someone else. Others think that succession plans apply only to family owned companies or large conglomerates. And many fail to see that it's not all about the owner - key people may exit your business unexpectedly, leaving huge holes in your capabilities.
There are a number of ways a business owner can exit the business
You can:
- sell
- arrange a management buy-out or buy-in
- pass the reins over to a family or employee successor
- raise capital by introducing new people to the ownership
- merge
- franchise
- sell off the assets
- close the doors
The benefits
A well thought through succession plan is essential to every business no matter what the intention is for the future. It should be a key part of your business' growth strategy and risk management process.
A structured succession strategy, planned well in advance, will enable you to leave behind a legacy of a profitable and sustainable business, a strong brand, solid strategic positioning, an untarnished reputation, a committed team and a good work culture. This legacy will get you a premium price for your business and attract the right successors. Such a legacy is built on the foundations of a sound succession plan.
A well-structured succession plan:
- attracts and retains suitable staff through development and nurturing strategies
- ensures a continuing sequence of qualified people to move up and take over when the current generation of managers and key people retire or move on
- ensures the business' value is protected and maximised by demonstrating a clearly defined viable future
- establishes and progressively builds up equity
- ensures a smooth transition with less likelihood of disruption to operations
- clarifies authority and decision-making roles
- maintains accountability and ensures stability
- can build a non-principal dependent practice increasing the capital value and the attractiveness of your business to potential buyers
Failure to plan
Procrastination or failure to plan for your business succession can result in:
- monetary losses, and even loss of the business itself through the degradation of the brand
- failure to keep pace with the competition
- loss of customers, sales
- staff attrition and loss of key talent
- fracturing of stakeholder relationships and goodwill
- a gradual decline in the value of the business
The basics of a good succession plan
The plan itself needs to be clearly thought out, documented, regularly reviewed and attainable. You must set a realistic timetable with measurable milestones along the way and stick to them.
You need to:
Identify your
- organisation's long-term goals and objectives
- staff developmental needs
- successors, who must be willing, able and prepared to take over
Consider
- workforce trends
- three stages of transition, termination and exit
Ensure
- continued strong leadership
- required funding is in place as early as possible