Succession planning involves replacing the current owner in the business using a well-thought-out plan, so that the business can successfully operate without interruption. If done well, this process will produce a capable and engaged successor and management team who have been sufficiently groomed and mentored, and who are responsible for the overall operation of the business. Choosing a successor and developing his or her leadership skills requires ample time, effort, and tools in order to make the transition a successful one.
Let’s look at some of the critical elements that should be part of any succession planning process.
Outline a Plan to Develop the Successors’ Skills – Grooming the successor(s) in a small or family business is something that takes careful planning in order to be successful. Owners should consider working closely with successors and an objective third party to determine:
- The scope and timing for their education or training.
- What performance measures will be put in place.
- How and when the performance evaluation process will take place.
A successor should be placed in a responsible position in the business and have specific and measurable objectives. They should be educated in decision-making, leadership, risk management, dealing with people (including management, employees, and customers), and handling stress – all while being evaluated along the way. As the successor moves through each phase, his or her responsibility should be increased as training and business goals are met and more rigorous goals are established.
Consider Outside Education – It may be a good idea for the successor to obtain some type of outside formal education in order to help him or her learn how to manage the business. Courses in areas such as business management, accounting, business law, and other topics related to the successor’s role may be beneficial. Another idea would be to have the successor join a CEO group or forum in order to learn from other experienced business leaders.
Make Introductions to Outside Contacts – It is likely that the business owner drew on a number of outside individuals to grow his or her business over the years. Once identified, successors should be introduced to the owner’s network of business contacts outside the business. These contacts could include business associates, customers, bankers, accountants, and lawyers. This will give the contacts time to get to know the successor and enable the successor to understand how important these relationships are for the business.
Bring in Outside Advisors as Necessary – It may be beneficial to work with an outside advisor or group of advisors to assist with the succession planning and education of the successor. While the business owner knows what goes into the day-to-day and long-term management of the company, sometimes it can be difficult to see all of the necessary components that need to go into the education of a successor. An outside advisor or advisory board can offer an unbiased view to help the successor achieve their goals and ensure a smooth transition process for the current owner.
Having a sound succession plan in place can help ease the transition for both you and your successor. Developing a plan will allow you to maintain control over this process, have the information you need to make decisions when necessary, and positively impact the outcome for everyone.