Succession Planning For Small Business Owners – What You Need To Know
Succession Planning refers to developing a plan that will help fill in the major leadership positions once the current people retire. It is essential to any business, big or small, as people will eventually retire from the company and it will be extremely difficult to fill such large and important positions at small notices, if you do not plan. If you have a viable succession plan in place, it will involve identifying and recruiting people already in the organization in a way that they will eventually be able to take on larger roles in the company. It becomes very difficult for a company, however small, if they have to hire people outside the company for key posts because that person will not be familiar with the business and how the work is done inside the company, the transition may prove very rocky.
Issues with Succession Planning
A lot of issues can come up when we talk about succession planning, such as:
Generation Transition: Only one of three small businesses completes the successful transition from one generation to another. This is especially true for small family owned businesses because often the interests of one generation are very different from the next.
Alignment of Interest: Alignments of interests become more definitive as older members of the organization leave and newer members are recruited and reins of the company are handed over to them.
There are five essential steps to any succession plan that must be kept in mind before devising one:
- Key Goals and Objectives:
The current succession plan must be reviewed, if there is one. It is very important to establish the key goals and objectives of the succession plan before you go ahead. If you do not know what you wish to achieve after the plan has been put in action, you will be lost as you will not even be able to gauge the success of the plan.
Make sure to identify the goals and objectives for the next generation as well, because they may not coincide with the senior members of the organization. Also, retain a group of professional advisors who can offer their expertise when it comes to issues of importance like finances et cetera.
- Decision Making Process:
Identify and establish the governance processes and how exactly things will be carried out. There should also be a detailed protocol if a dispute arises so it is known what to do to resolve the issues. Make sure all the stakeholders are involved in the process. Strategies for recruitment should be devised.
- Establish Succession Plan
Identify the people who will be taking over the key position when their current owners retire. Active and non active roles by all the people involved should also be identified.
- Business Plan
Address the taxation implications to the business and owner upon sale of the small business, transfer of ownership et cetera. A buy/sell agreement should be created that is fair so the true value of the business is reflected in the plan.
- Create Transition Plan
Write down the transition plan so it is known how each transition will take place. Establish a proper timeline for the succession plan.