A basic guide to Succession Planning

A Succession Plan is often rendered a one-off thing left rotting in a drawer; this mindset will inhibit its effectiveness.  It’s crucial to consider Succession Planning as an important aspect of your overall business strategy that requires regular reflection and ongoing development.

A robust and effective Succession Plan takes a minimum of three to five years from initial planning to implementation. Having said that, a shorter term plan is better than no plan.  Generally, the longer you have to execute your plan the bigger the opportunity you have to maximise the value of your business and therefore capital you extract on exiting.

It isn’t just about securing your future.

If you were hit by a bus tomorrow, how seamless and pain free would the transition be – both for your business and those who rely on it?  In such an event would the operation, management and value of your business be compromised?

Succession Planning isn’t just about imminent retirement.  It’s still an extremely valuable exercise whether you’re planning to retire in 20 years, or if you’ve already lined up your successor.  Should something unforeseen happen to you, this planning will downgrade a major crisis to a significant but manageable event.

By having the conversations now and documenting clear intentions you could save yourself (and your stakeholders and family) a lot of pain should an unexpected event occur.

It’s also about efficiency.

Planning for unexpected scenarios forces you to assess who does what, why and how they do it:

•   Is the right person performing the task?
•   Is their process the best way of doing the job?
•   If multiple people perform the task are they doing so consistently?
•   Should this task in fact be the responsibility of a single team member?

It’s about providing a safety net for your team.  Documenting the key business processes in your company enables you to devise the most efficient system for each task.  Having a documented process to follow is helpful when a team member is absent but most importantly when it comes time to transfer this knowledge to a new manager or owner.

The Succession Planning Process

Defining the relevant key steps for your business. 

Without dedicating time to the succession process you’ll miss valuable opportunities to reduce stress and improve value.  Devising your succession process will ensure you consider all potential opportunities and make the right decisions for your business, your customers, your team and your future.

Your process will include at least the first eight steps below, and probably a good number of those following:

1.   Clearly defining your business and personal goals.
2.   Establishing and documenting the vision for your business.
3.   Establishing your business support network.
4.   Identifying the factors that may influence your plan, e.g. changing market place trends.
5.   Researching and deciding on the most appropriate succession option.
6.   Identifying potential successors.
7.   Creating a succession timeline (in order to work backwards).
8.   Developing and documenting your Succession Plan (to be aligned with your overall strategic plan).
9.   Creating a robust Organisational Structure (management structure / role definitions).
10.   Documenting and completing internal due diligence requirements (both financial and operational).
11.   Valuing the business (using an external provider).
12.   Business Development / grooming for added value.
13.   Financial Forecasting (how the business could be valued in future).
14.   Restructuring for the vendor (assets included or excluded from the succession).
15.   Restructuring for the purchase if generational succession (Trusts).
16.   Financing (tidying up the balance sheet).
17.   Protecting your assets (security, structure, shareholder agreement / insurances).
18.   Updating other insurances.
19.   Updating your important personal legal documentation (Wills, Memorandum of wishes, etc.).
20.   Tax planning to ensure tax is considered and provided for.
21.   Packaging your business in an appealing and saleable manner.
22.   Taking your business to market.
23.   Filtering enquiries from potential buyers.
24.   Documenting and signing the sale and purchase agreement.
25.   Facilitating / completing settlement.
26.   Dealing with post settlement matters.
27.   Delivering an ongoing consulting arrangement (if you are to remain in the business).

The business that you have grown could be your nest egg.  With so many businesses likely to hit the market in the coming years, it’s more important than ever to groom your business wisely.  Great businesses will continue to achieve a high sale value; others will face greater pressure or potentially be rendered unsalable.

Conflict is part of the process.

With passion and energy comes conflict.  When directed effectively this can lead to better communication and decision making as well as new opportunities for the next generation to improve the business.

Letting go.

A big part of Success Planning is knowing when and how to let go.  As business owner you must be financially secure or it will be hard to retire.  You could also need a new focus (or focuses) – providing a reason to retire.  Mentoring and coaching can be a great way to impart valuable knowledge gained during your career.

Supporting the new leader.

1. Regular (and constructive) meetings with your advisors as a team.
2. If you haven’t yet documented your business’s Core Values, now is a great time to do so.
3. Strong leadership is all about making goals and expectations clear to the team then allowing them to come up with the best ways to achieve these goals.
4. Leadership skills can be learnt – make sure you provide appropriate training and mentoring.  The Succession Plan must be visible, providing that ‘brightness of future’ for your team.  They need to know where you’re planning to go so that they can set their own goals, consistent with the direction you’re taking. 
5. Processes and back up people prevent important knowledge from walking out the door.  It’s also about managing tasks effectively, without undue reliance on certain people (as this diminishes your business’s value).

Succession Planning is a journey not a destination.

Succession Planning is not only about preparing the next generation but also ensuring the business can weather the unexpected without negative consequences.  The succession of a business is also a fantastic opportunity for the next generation to enhance the business and add value.

“Businesses are not made to last but businesses are made to be needed.”  

Denise Kenyon-Rouvinez

If you would like to find out more about Creating your initial Succession Plan please do get in touch and we can send you a free more detailed 27 step guide.