How To Prepare Your Business For Succession Planning
Many people think that Succession Planning is something that only family businesses do. In fact, it is something that really is unrelated to family businesses. Sure, many family businesses have in the back of their minds how to involve their children or transition the business to the next generation. However, all business owners (not just those in family businesses) will face a time when they need to think about succession – what to do with their business when they no longer want to be involved.
This could be:
- A straight sale
- Handing over management responsibility to key staff
- Allowing either staff or others to buy into the business
- Or it could involve transitioning the business to other family members
What Is It?
Succession planning is a strategy for passing on leadership roles – and often the ownership of a company – to an employee or group of employees. It is also known as “replacement planning” and it ensures that businesses continue to run smoothly after a company’s most important people move on to new opportunities, retire, or pass away.
Is It Relevant For You?
How much this is on your mind can depend on what stage of life you are at. Generally speaking, older business owners will be thinking about succession planning (or at least should be thinking about it) more than younger business owners. However, there are also young, entrepreneurial business owners who think about selling the business, or setting up the business to operate without them, even before they have started or purchased a business! This is the ultimate form of succession planning.
Any smart business owner should be thinking about how to set up their business so that it is not dependent on them. In terms of our own clients, this may or may not be a goal that many of them have, but as business coaches and advisors it is our duty to always have this in the back of our minds. From experience, we know that a business that can run without the day-to-day involvement of the owner is a business that is more sustainable, more valuable and it provides the owner with a much greater level of freedom.
5 Tips For Successful Succession Planning
The steps to achieving a successful succession outcome is different for each business but it generally means having good management systems and a good team in place. It also requires a commitment from the business owner. Let’s face it, people who start businesses tend to be “control freaks” and it can be difficult to let go and hand over management responsibility to others. This area of leadership and personal development is another key piece of the puzzle that we help our clients with.
Here are my Top 5 Tips for a successful succession planning process:
1. Get clear yourself before discussing it with your staff or family members more broadly
People don’t like uncertainty, so it is preferable for you to have a good idea of how you see the business running when you are no longer involved. I totally understand that this is not always easy to work out since there are many options (as listed above) from a straight sale to a staged buy out or investment by your senior team.
To help you to get clear on the best option for you, I recommend that you discuss this with your trusted advisors or business friends who can help you work through the process and the alternatives. Your trusted “succession advisors” may even be 1 or 2 of your close family members or employees. This is my only caveat when I recommend getting clear before discussing this topic with your team – you may need to involve some of your family or employees, but try to limit it to those that you feel will be objective and that have YOUR interests at heart.
2. Choose your replacement team on values and not just skills
Just like when you employ people, it normally results in a better outcome when you select your new team on attitude, values and potential rather than just selecting people who already have the skills but may not be the best fit for your business or your team.
We have all fallen into the trap of employing someone highly experienced who may be a little difficult to work with, and overlooked the misalignment of that person’s values, approach or work ethic with our own values and that of the rest of the business. When this happens it normally results in tension and lots of time spent “managing” this person and their relationships with the rest of the team or with your customers.
This is the same when you are evaluating the next leaders for your business – choose those that can continue with your legacy and that can treat your team with fairness and respect. I’m not saying not to look for someone with the right skills and experience – ideally you will select someone with experience, skills and the right fit – I’m just saying that the right fit (as long as they have the potential to grow) is normally more important than skills and experience.
3. Make it a business that is attractive to the new team
Whether you are thinking of selling the business or transferring it to your family or senior team, it is far more valuable to you (and them) if it is profitable and running well. You will get more for it if you are selling and you will leave the next leaders less headaches and more chance of success.
Creating a highly profitable and well-run business is the focus that we have with all of our clients, regardless of if they have succession goals. There is a lot involved and can take some time but, in a nutshell, it means:
- Positioning your business so that it can price it’s products and services to make a good profit.
- Having a good team in place that is productive and committed to your customers and that work in harmony with each other.
- Being organised and having good management systems and processes for your team to follow.
4. Map out a clear plan and make it a priority
The Succession Planning process normally takes years of planning and work, and all of this while you are still running and growing your business. So start early and map out your milestones and key activities into a plan.
We use a quarterly planning process with all of our clients, which covers long-term goal setting and a more short-term 90 Day Plan. Depending on what other projects you have running, the succession planning project may only have 1 or 2 things on each quarterly plan. The whole idea is to keep it manageable, start early and chip away consistently and you will be amazed at how much you can achieve.
5. Communication is key
Don’t expect things to be set in stone and run exactly to plan. Things will change along the way, you may adjust your personal goals, additional information will come to hand, and the people involved may change their minds.
During all of these adjustments (and let’s face it, business and the environment that we work in is always changing and dynamic) it is vital that you communicate openly and regularly with your team. For the succession planning project, I would suggest monthly updates and a quarterly review aligned with your overall 90 Day planning process. Also make sure that you share any important information immediately once it is know and try to keep everyone in the loop so that everyone feels full informed and on the same page as everyone else.
In the next article on succession planning, I will be sharing case studies of both family and non-family business clients of ours that have either sold or transitioned the management of the business to others, and some of the lessons that they have learned along the way.
Director, Chan & Naylor Business Coaching