If you’ve started thinking about building up the next generation of your business, chances are you’ve heard the term succession plan—a plan that serves as a blueprint for the future structure of your business. You know you need to have one of these strategies in place in case of an emergent or planned handing-off of leadership. And, you know this is the key to a long-standing business.
So now the question is, how do you actually create a succession plan?
Five Components of an Effective Succession Plan
1. Identifying potential successors
The first step to creating an effective succession plan is to identify potential successors within your business. This foundational step plays a large role in the level of success your business will have as it moves on to the next generation.
Choosing between family members can feel difficult, but take the time to ask yourself the tough questions. Who is already discussing the future of the business? Who has vision? Who has untapped potential and a willingness to learn? Potential successors should be future-minded while also willing to preserve the name and legacy of the business.
2. Developing leadership and management skills
Even if the successors you have in mind have been in the business for a long time, there is always potential to unleash even greater levels of creativity, leadership, and management skills, which is why exposure to leadership coaching is crucial.
By investing in the education and development of your team, you empower potential successors, making them better equipped to eventually lead the business. This process might even unveil hidden talents in team members you hadn’t noticed before. Offering chances for potential successors to participate in significant business decisions alongside current leadership fosters their growth. Additionally, researching organizations that provide NextGen and Leadership training aligned with your values is crucial.
3. Creating a clear organizational structure
Creating a clear organizational structure is pivotal in ensuring the smooth transition of your business to the next generation. Once you have identified your successor(s), it’s essential to carefully plan the roles and responsibilities within the organization. Take a critical look at the existing structure, evaluating its strengths and weaknesses. Consider what is and isn’t working, ensuring that every crucial role and responsibility is defined. This thoughtful evaluation will guide you in selecting the most suitable organizational structure, setting the stage for your business’s seamless evolution under its new leadership. If the process feels overwhelming, rest assured, we can help you make these vital decisions.
4. Addressing legal and financial considerations
You’re a pro in your field, but when it comes to legal stuff, it’s essential to talk to experts who really know the ins and outs of the law. Have a conversation with your legal team, or find one you can trust, and discuss the legalities of mergers and acquisitions and other necessary details around exit planning.
When it comes to financial considerations, keep in mind the financial literacy of your selected successor. You’ll want to avoid leaving your business in the hands of someone who may unintentionally lead it into bankruptcy. Discuss a potential buy-sell agreement or other options with legal and your appointed successor. You can also set your business up for success by appointing someone in the organizational structure to weigh in on financial decisions, ensuring that your successor is supported in all financial aspects.
5. Communication strategies within the family
When it comes to communication, more is best. Start conversations about succession planning early and, if appropriate, involve family members in the planning process. This is especially helpful during the building of the organizational structure, to ensure everyone continues to feel heard and supported even after the current leadership has moved on.
After the succession plan has been established, continue to discuss it regularly. These conversations will aid in the transition process, as people are more likely to remember the decisions that have been made and the changes being put in place.
Navigating the Succession Planning Process
The process of planning a succession can feel overwhelming. Here are four ways that we help our clients navigate planning while mitigating overwhelm:
Assessing the current state of the business
When creating a succession plan for your family business, one of the first things you should do is assess the current state of the business. Take a close look at the existing organizational structure, reviewing the roles and responsibilities of each person. Have a discussion about what is working well and what may need to be adjusted or reassigned. This will help you identify liabilities that exist within the structure, and allow you to make changes to better support your successor. You can also create an open dialogue with current board members, investors, and other members of your business to get a pulse on what may or may not be working from their standpoint.
Setting realistic timelines and goals
A clear succession plan includes realistic timelines and goals. When succession planning, it’s important to understand the current and future needs of your business, so that you can create a transition timeline that appropriately addresses each need, along with any changes that will be occurring. With an actionable, clearly defined timeline in place, you can expect a smooth succession process.
Seeking external expertise and advice
Succession planning requires hard decisions to be made, and not all of them will be in your realm of expertise. If you want a transition-proof succession plan that will hold up in planned or emergent circumstances, reach out to a professional who can guide you through the tiniest detail of succession planning. When you find the right expert, you can be sure you have planned for every scenario.
Documenting the succession plan
Documentation is just as crucial as communication. You will want to document every decision made in the succession planning process, including timelines and the five components of an effective plan discussed above.
Running a family business is no easy task. Don’t leave your succession plan in the hands of an online template or well-intentioned web search. Contact us to ensure you create a succession plan that supports your family-owned business for generations to come.
