You’ve put years of work into establishing your business as the success that it is, and you’re ready to start looking to the future. It’s important to you that the next leader of your company shares your values, drive, and commitment to carrying on your legacy.
Business succession planning is key to passing on your business to the next leader. A thorough succession plan will help you define company goals, identify and train your successor, and write a formal strategy that can be reviewed and implemented with key stakeholders.
While vital for a smooth transfer of leadership, developing a succession plan is a complex process involving a lot of thoughtful preparation. Because there is no standard approach to succession planning, there will be many factors that influence both the content and the timing of your plan.
In this article, we’ll share some ideas on how to determine if business succession planning is right for you, and how to assess the appropriate succession planning timeline for your unique situation.
Getting Started With Succession Planning
What’s an appropriate amount of time to develop and implement a succession plan?
Three to five years to complete the transfer to your successor, including training, acclimation, and some padding in the event that the transition needs to occur sooner than planned.
The time frame may also depend on whether your business is transferred internally or through external sale.
What are some considerations when planning for succession?
Be mindful of milestones such as: choosing a successor, identifying potential obstacles, training and development, and filling organizational gaps.
Regularly monitor progress to identify and tend to any obstacles as they arise, and keep your stakeholders informed.
When is succession planning not right for my business?
If you plan to sell your business before retirement and will not be involved after the sale.
If you operate a sole proprietorship, there may not be much to pass on.
Is Succession Planning Right For You?
While succession planning is important for many businesses, there are some exceptions. You might be able to skip business succession planning if:
- You have several offers to purchase your business and don’t intend to remain involved. If there are potential suitors interested in acquiring your company, you might simply be able to sell the business and head toward your next adventure.
- Your business is a sole proprietorship. If you are the entire business, it would be appropriate to slowly reduce your workload and transition to your next opportunity on your own terms.
Your Succession Planning Time Frame
If you have determined that succession planning is right for your company, next you’ll need to decide on an appropriate time frame for implementation. Unexpected circumstances easily accelerate a timeline, so having a plan in place well in advance will help manage the transition even if the situation is chaotic.
We generally recommend a three to five year process. This allows for the training and acclimation of new leadership, identifying potential obstacles, and maintaining communication with your staff and stakeholders. The effects of unforeseen circumstances can be better mitigated when you have the buffer of a few years.
One year or less does not allow for the time needed to adequately or smoothly prepare for or complete the transition. A lot can change in five years, so that’s probably too long. Your own timeline will depend on many factors, including type of transfer, training and development needs, filling gaps, and your goals for yourself and the business.
Internal Succession or External Sale?
For the most part, companies come under new ownership in one of two ways, either by internal succession or external sale. Knowing how you want to transfer your business is important to establishing your succession planning timeline.
Internal Succession
When you’re passing a leadership role to someone from inside your organization, you’ll want to allow adequate time for the following activities:
- Assessing the skills of your potential successor(s) and identifying any gaps that need to be filled through training or mentorship.
- Evaluating whether your successor has what it takes to move your company into the future you envision. Skills required to grow a business from scratch may not be the same skills required to take it to the next level.
- Implementing training and development for your potential successor, especially if it will include time commitments beyond their normal workload.
- Thoughtfully engaging your employees about the transition and providing solid support. If they don’t understand or support the new leadership, morale and productivity may take a negative turn thus jeopardizing the future of your business.
External Sale
When planning for an external sale, it’s important to consider the time it will take to implement the following steps:
- Polish and update your financial records with the help of a qualified financial advisor. This will help make the valuation and sales process go smoothly, and give your potential buyers a sense of confidence.
- Transition slowly out of your current position. Some external sales may require you to remain involved in leadership for a year or two in order to facilitate a smoother transition.
Milestones to Consider
As you develop your succession planning timeline, there are some common milestones to keep track of. Setting specific goals for these milestones can help keep your timeline on track:
- Choosing a successor
- Identifying potential shortcomings and obstacles
- Training and development completed for new leadership
- Filling organizational gaps after successors move up
Monitor Progress Regularly
Monitoring the progress of your succession plan along the way will allow you to identify additional needs, address challenges as they arise, and reassure your stakeholders that the transition is being appropriately managed.
We recommend annual or bi-annual meetings with key stakeholders to update them on your progress. This will give you the chance to share the ways in which you’ve been re-evaluating responsibilities, assessing skill development, and identifying additional tasks that should be handed over.
To put your succession plan to the test, you might consider taking a long vacation from work to identify any weaknesses in the handover process. Before fully stepping away, you’ll be able to address these issues with your successor.
Getting Started with Succession Planning
Business succession planning can be a complex process with many factors to consider. Seek out trusted resources such as Business Succession Planning for Dummies and other resources specific to your industry.
Seek advice from your peers who have been through similar processes and consult with professionals. Financial planners, accountants, tax experts, and attorneys will be an important part of your succession planning team.
Final Thoughts
You’re passionate about protecting the legacy of your company, and you want to make sure that there is plenty of time to train and prepare the next generation of leaders to move your vision forward. Establishing a business succession plan with a realistic timeline will help guide you effectively through the process, smoothing out any ruffles along the way, and making available a directive in case things happen sooner than anticipated.
If you’re ready to start transitioning out of your leadership role, seek out a professional team of experts and start looking at potential successors. Once you’ve determined what kind of training and planning are needed, schedule out the milestones to keep your timeline on track, and keep good communication with your employees and stakeholders to avoid unnecessary complications.
The financial advisors at SK Wealth are experienced in empowering business leaders like you to make informed decisions throughout all stages of your company’s growth. The recommendations provided through our financial planning process, The Integrated Financial Advantage™, are invaluable during transitions of leadership or sale of your company. SK Wealth is here to provide guidance and direction so you can live with intention, tomorrow and today.
