Succession planning is a key factor when you are a business owner. At some point as a business owner you will have to pass down the legacy. This task might be easier for some than others, but each owner will have to face the inevitable. Starting this plan early on into your business career will help make for an easier transition when the time eventually comes. It will also help assess the short and long-term development needs of the company.
Before the planning even begins you need to ask yourself a few critical questions:
- When do you want to transition out of your ownership role?
- How can you derive the greatest value of your business?
- Who’s the best candidate(s) to lead your company into the future?
- How do you know you have the right talent and management team in place?
- Where do you see yourself in 5, 10, 15, 20 years?
By answering these questions before you start your succession planning you will have brainstormed the essential thoughts to help make your plan as successful as you can.
How to Start
In order for your plan to be successful you should start by communicating with those that you know and trust. Your family and staff know you and can objectively discuss your vision for the future – for yourself and your company.
As an owner you must identify your financial conflicts. You should look at the expected versus actual value of your company in order to make proper projections. Everyone has a plan of what they would like to do once they retire. Some might have more ambitious goals than others, but figuring out your retirement plan is needed. Owners also need to look at management’s acceptance of risks associated with ownership; as well as the credit capacity of the company and impact on ongoing operations after the transition.
Decide which family members or key managers you want to be part of your ownership and management succession plan. In order to be successful, business owners need to have a team of talented people. The key is to take those talented people and place them in strategic positions to best suit each of them to fill the crucial role when the time comes.
Make sure everyone understands the responsibilities and risks associated with their roles in the succession plan. It is important that those who will be taking on such roles are knowledgeable in what’s to come. The alignment of all your stakeholders regardless of their role is essential for your vision to be realized.
Evaluate your successor owner/manager’s dynamics in anticipation of how he/she will respond to the change in management.
Looking at the value of your business will help determine the potential of your business. With small businesses, the vast majority of the company’s value is represented by the owner’s expertise, relationships, and reputation.
Market and customers are how you will have the potential for growth. Understanding the right market and what your customers’ needs are will lead you in the right direction for expansion. As a business owner you need to market for expertise or specialization as well to enhance operations.
Having the proper infrastructure will help with how the operation of your company will be run. You will need quality of your assets – real estate and equipment, adequate management IT systems and a well-oiled management team that is able to maintain infrastructure into the future.
In addition, the company will have to be positioned so that banking and surety relationships can function without your involvement as a founder.
Key Aspects of Succession Plan
Creating a lasting legacy that can be passed on for generations to come is the ultimate goal for business owners. Staying motivated can be challenging at times, but accounting for the unique needs of both your business and family empowers you to create and maintain that goal.
As a business owner you need to have a system for financial planning for both the company and yourself. The company will have to shift its focus to ensuring the business stays competitive beyond the transition. As for the personal aspect, the focus needs to be shifted to saving and investing for the future (assets, taxes, cash flow management).
Forming an effective and efficient management succession plan, and creating the right culture for the future, will help to develop and retain the next generation of leaders.
Estate planning will help ensure tax relief, balancing needs of family with needs of the business and update wills and keep them current.
Reevaluating and fine-tuning the plan is needed to adjust to changing situations and demands.
In conclusion, there are many aspects that go into succession planning. They are extensive but crucial when it comes to passing down the legacy. If you have any questions, or need more information please feel free to contact us at teamdkb.com.