What It Is
Succession planning is a process through which organizations prepare to hand over control to the next generation of leadership. The goal is to make the process as smooth as possible so there is little disruption when an owner or employee steps down. Although usually thought of only in terms of upper management, succession planning should ensure that employees are trained to fill every key role within your business.
Why It Matters
Succession planning ensures that if an owner leaves a business, retires, becomes disabled, or dies, the business will still continue to function as desired and will not fold due to lack of leadership or estate taxes. Succession planning is also a means of maintaining values and culture, such as those around sustainability.
Although succession is the method of divesting responsibility, effectively carrying this process through to completion takes much forethought and effort on the part of the owner. Before succession planning begins, an owner must be committed to the concept of the business and the promise it has in the future. Thinking through when the transition might take place as well as the values the organization holds and which values are critical as the organization transitions to the next generation leadership is an important first step.
Announcing and implementing the succession must be planned in enough detail to provide for a smooth transition. To ensure that values such as sustainability are carried over to the new leadership, consider ways to embed them into the transition. For example, selecting a successor who shares certain ethics or values or elucidating non-negotiable terms for the succession can help ensure that the culture is protected.
During succession, the owner must invest effort into recruiting, selecting, and then training a qualified successor. In many cases, strong candidates for successors are already a part of the organization. If that is the case, begin preparing key employees today for important roles they may play tomorrow.
- This article from Entrepreneur Magazine addresses many of the reasons for succession planning
- The Small Business Administration website provides guidance for exiting a business
- This article from Business First walks through the seven steps necessary for forming a business succession plan
- This article from Small Business Notes on succession planning is designed specifically for small businesses. It highlights challenges in choosing a successor within the family as well as ways to transfer finances.
Glossary of Related Terms
Key Person Insurance: Sometimes called key man insurance or key executive insurance, is designed to protect a business in the event of the death of an executive or key team member who makes a significant contribution towards the profitability or stability of the business.
Succession Plan: The process of identifying and preparing suitable employees through mentoring, training, and job rotation to replace key players within an organization. A comprehensive look at the planning picture that can include shareholder buy-sell agreements to management plans and any other documentation that will help ensure the smooth operation of the business.