When you’ve spent your life working hard to build a successful business, you want to see your company continue its growth long after you’ve moved on. A comprehensive succession plan can give your company a roadmap for selecting, developing, and passing management/ownership to the next generation of leaders.
Understanding Succession Planning
A business succession plan will include a structured process to identify, develop, and pass ownership or management onto future company leaders. Succession plans can avoid disputes and chaos arising when a company’s leaders depart the business, retire, become incapacitated, or pass away. A succession plan differs from emergency planning as it involves a long-term, proactive strategy to determine future leaders, develop their skills/experience, and develop protocols to pass leadership to them upon the occurrence of specific events.
The Importance of Succession Planning for Businesses
A thoroughly crafted succession plan can provide businesses with multiple critical benefits, such as:
- Continuity/stability: A succession plan can avoid operational disruptions by ensuring a smooth transition between company leaders.
- Employee morale/retention: A clear transition plan can give employees a vision of the company’s future, reducing staff turnover during leadership succession.
- Preservation of business value: A company’s plan to pass leadership from one generation to the next can increase its value to investors, business partners, or acquirers.
- Reduction of financial and legal risks: Succession plans can mitigate potential financial and legal costs that may arise from disputes over company ownership/management.
Steps for Developing a Succession Plan
The critical steps in developing a succession plan for a business include:
- Identify critical positions: Companies should identify the roles critical to the business’s long-term success, such as C-suite or top-level managerial positions.
- Designate successors: Business leaders should select potential successors for the succession plan by evaluating internal talent or identifying external candidates.
- Develop successor experience and skills: Once the company has identified internal successor candidates or brought in external candidates, leaders should put candidates through leadership training programs to provide them with the skills and experience needed to take over the business.
- Create a transition timeline: A succession plan should outline when or under what circumstances a succession will occur and the steps that various stakeholders in the business should follow to implement the plan.
- Document and communicate the succession plan: To avoid potential conflicts, company leaders should communicate the details of the succession plan to stakeholders and get buy-in.
- Review and update the plan: Companies should review and adjust their succession plans based on changes to business strategy and personnel (such as the failure of leadership candidates to develop necessary skills or the departure of said candidates from the company.
Common Challenges in Succession Planning
Challenges and obstacles that business owners may face during succession planning include:
- Family dynamics: Family conflicts can complicate succession planning for family-owned businesses, as other family members may disagree with the choice of successor(s) or feel “passed over.”
- Delayed planning: Unfortunately, some business owners may delay succession planning due to resistance to retiring or letting someone else assume management responsibilities. However, delays may lead to companies having limited time to implement a succession plan, such as when the company’s leader suddenly becomes incapacitated or dies.
- Resistance to change: Various stakeholders, such as investors, vendors, and customers, may resist succession in a company’s leadership, potentially resulting in the loss of critical business relationships.
- Inadequate training/experience: Succession planning may not lead to an optimal outcome if business owners fail to train and provide experience to the employees chosen to succeed them.
Contact a Business Law Attorney Today
Succession planning can ensure that the business you’ve worked hard to build continues long after your retirement or passing. A business law attorney can help you structure a succession plan that protects your company’s operations and future. Contact Surovell Isaacs & Levy PLC for an initial consultation with a business attorney to guide you and your company through the succession planning process.
Posted in: Business Law