What would happen to your business if you suddenly weren’t there to run it anymore, or if one of your essential leaders moved on unexpectedly? It’s natural to avoid these morbid thoughts, but when a family or community relies on a small business, it’s necessary to establish a plan.
“Family business owners tend to ignore succession planning until it’s staring them right in their face” says James McBain of U.S. Bank Private Wealth Management.
According to a PwC survey, 34% of U.S based family-owned businesses aren’t set up with a succession plan. It doesn’t have to be something to fear. In most cases, succession planning leaves a detailed outline of the business’s next steps for retirement, or even unexpected illness or death.
What is Succession Planning
ADP defines succession planning as identifying personnel to replace key employees in the future. Succession planning is typically meant for leadership positions, such as the business owner or CEO, but can also include guidelines for employees who are vital to the small business’s success.
U.S. Bank Private Wealth Management recommends beginning succession planning five to 10 years before the owner steps down. This initiative is typically led by the business owner or company leaders.
How to Start Succession Planning
With proper documentation, the goals and objectives desired for your small business can be successfully executed, even after you’ve exited the company. It gives you the opportunity to leave clear instructions on your business’s goals and standard operating procedures.
Each small business has a unique operating structure, meaning succession plans aren’t easily duplicated. However, you will find that most plans have common elements.
- Identify and define essential roles
- Identify possible successors
- Document standard operating procedures, goals and objectives
- Include clear instructions on the value of your business; financial performance, liabilities, and debts
- Set a transition timeline
Be sure to evaluate your small business and develop a plan that best suits your situation.
If the business is left to a family member, the succession plan can help guide the next generation with the framework you worked so hard to establish.
Succession Planning Hardships
Succession planning can also bring forward uncomfortable conversations with family members about their validity and role in the business. McBain explains, “Focus on what you own and what it’s worth, understand the corporate structure and factor in any potential business growth over the next 10 years.”
While daunting, succession planning is beneficial for the long-term success of your business and who you identify to lead it. It may also provide you with peace of mind once completed.