Implementing succession into your business can be an extremely daunting undertaking. For most business owners, succession planning can be a new experience. Other business owners may have already attempted succession planning unsuccessfully. Traditionally, succession of a small business has been a family affair however this has shifted over the years to either a part or full exit from the family.
There is also something unique about family-owned businesses that is important to address during the succession planning process. Perhaps your business has been passed down to you from your parents, and the business continues to operate the same way as it did decades ago. Making sure that you are ready to exit, or pass your business on to the next generation, is important. We will take a look at the steps you need to be taking for highly effective succession planning.
Defining Rules Early On
Life can be unpredictable and accidents or illness can occur at the most unexpected times. As the owner of a business, you need to ensure that there are rules or goals set up to ensure the safety and prosperity of the business in your absence. This step is even more vital in a business that is not run within a family, or is there is more than one family involved. These rules or goals within the business should cover the following situations:
- In the event of your death, who will temporarily stand in as your replacement until legal proceedings are completed?
- If you become disabled or struck with a long-term illness, what steps will be taken to appoint a new leader of the business?
- Upon your retirement, who is the most suitable candidate to succeed you?
Succession planning starts with a desired exit point, be that age or a particular wealth level. Then the goals or rules need to be identified and put into place. Knowing when you would like to retire and also having a set of rules in the business for unexpected events can help plan the businesses internal direction and structure and can contribute to a smoother transition to your retirement.
Making Sure the Next Generation is Ready
Almost half of all public companies globally fail to actively work on getting the next generation of leaders ready for their new role. Failure to address this step can wreak havoc on a company, especially when an exit occurs or unforeseen event takes place. Small to medium businesses who don’t have the correct operational structures in place experience significantly greater impact in these times.
Once a suitable candidate to replace you as the business owner, it’s time to start training them, ensuring that they develop the skill sets required to succeed. The earlier you start this process the better equipped they will be by the time you are ready to retire.
Where to Start?
Start by assessing who of your current employees may be a good fit, what their current set of skills are, and if they have any particular areas that require training and improvement. There are certain skills considered essential for anyone who will be filling a CEO, or general manager position, such as the following:
- Exceptional communication skills, as they must effectively communicate with the entire company.
- The ability to take risks, but also to understand when the risk has too many variables that could lead to serious losses.
- Strong listening skills, as it is important for any leader to understand the needs of staff members and to address any concerns within the company.
- Effectively build professional relationships without difficulty. Noting that these relationships will pay off in the long term, improve the network of connections, and enable teams to work together more efficiently.
- Optimism is also considered an important skill for Leaders. If senior leadership constantly find themselves with a negative view of the business, or specific aspects of the business, it can create a negative atmosphere within the company.
As the current owner or senior leader, you need to analyse the potential candidate to be your successor and look at which skills they need to work on. Keep them close during meetings and other important operations – as seeing you in action might be the best way to nurture your successor to ensure they adopt the necessary skills. Sending them for training programs can also be a good option to build upon their existing skill sets.
Other Considerations
There are plenty of considerations to factor in when implementing a succession plan. Below are just some high level considerations:
- Understand what the drivers for value are. Two major influences of value are to increase profitability and reduce risk.
- You will need to make your business or the role attractive.
- Consider the culture of your business, ease of operations, or the barriers of entry for your succession.
- Retirement or exiting a business can be a difficult process. Consider how you will step out of your role while empowering your replacement.
- Commit to your exit.
Conclusion
Succession planning is often overlooked, and without proper planning in place, a business can be left rippled for the medium to long term. Early planning can help to ensure there are set of rules or objectives that you, or your family can fall back on in case of an exit or change. You can use a succession planning template, or seek advice from a business consultant, if you are finding it difficult to get started with the process of your succession planning.
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