Succession planning is defined as a process for identifying and developing new leaders in a company should current leaders leave, retire or die. While planning for such a big change can seem daunting, succession planning can also be “a great opportunity to maximize opportunities and create a multi-generational institution that embodies the family’s values and mission for generations to come,” according to The Family Business Institute.
The alternative to succession planning is potentially having to shut down a healthy business because a qualified leader is not available. Or, in other cases, family members inherit a healthy business but are forced into bankruptcy due to lack of planning and funds to pay taxes.
According to The Family Firm Institute, only about 30 percent of family businesses survive into the second generation. Research indicates that failures can essentially be traced to one factor: a lack of succession planning.
The U.S. Small Business Administration (SBA) says the hard truth is that many small business owners have no exit strategy for their business. It’s understandable that in the current economy small business owners are focusing their energy on just surviving with hopes for some modest growth. But developing a succession plan not only means having a plan for the unexpected, but it also ensures future success and peace of mind in knowing the company you worked so hard to build is in good hands.
At the heart of transitioning a business from one leader to another is finding replacements for key roles. Searching internally for employees to fill these roles is a great place to start. Employees identified as having the knowledge and skills to advance can be prepared for promotion and help ensure that you always have qualified employees on hand waiting to fill new or vacant roles.
Studies indicate that companies reporting the greatest success from succession planning feature high ownership by the CEO and high degrees of engagement among the leadership team. Companies well known for their succession planning include GE, Honeywell, IBM, Marriott, Microsoft, Pepsi and Nike. In these companies, vacancies are anticipated, and senior leaders have ongoing discussions about which employees are ready to take on bigger roles.
“I have long felt a great responsibility to provide clarity and certainty for the long-term governance and leadership of Nike and for my ultimate transition as chairman,” Nike founder Phil Knight said in 2015 upon his retirement. “I have worked closely with the Nike board in developing this plan and in identifying the most qualified person to serve as my successor in this role.”
While the SBA recognizes that succession planning is a challenging task, it is worth the reward for founders and company leaders to watch their businesses succeed into the next generation. It’s recommended that leaders seek advice from outside advisers such as an accountant, attorney and investment or insurance professionals to make the transition as smooth and successful as possible.
5 Steps to Succession Planning:
Choose Your Successor
It’s difficult to choose a successor for your own job. This process is an intensive effort that calls for an examination of all employees who potentially have skill and ability to lead the company. You can always seek the advice of your board of directors or that of a search committee to add objectivity to the process. Experts generally estimate that succession planning should begin 15 years before you intend to retire so that you will have time to oversee the transition.
Develop a Formal Training Plan for Your Successor
Identify the critical functions of the company and then have your successor work in each of these areas. Immerse them in the business so that they can see the depth and breadth of the operation. There is a certain amount of “letting go” that goes along with teaching your successor by allowing him or her to learn, grow and make mistakes before assuming the helm.
Establish a Timetable
Set up a training timetable and a timetable for shifting control of the company. If succession is to be successful, you, your successor and your management team need to know who is in charge of what and when. A timetable also helps motivate your successor to move through his or her training program quickly and successfully with a clear understanding of what the coming roles and responsibilities are going to be when you move out of day-to-day operations.
Prepare Yourself for Retirement
Begin your retirement plan early. That plan may encompass recreation, travel, community service or another business venture. As your successor takes on more and more responsibilities, spend time planning how you will continue to be energized and involved in other activities away from the business.
You owe it to your company’s future and to yourself to install your successor in your lifetime. Once that’s accomplished, you need to be prepared to let your successor carry out the role for which he or she has been trained. Ultimately, your successor’s success or failure is up to him or her. Your job is to lay the groundwork, provide the training and establish a culture for your company.
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