If you were in an accident on Friday and couldn’t lead your company anymore, what would happen to it on Monday? What would happen if an essential member of your team stepped down tomorrow? How long would it take for your company to get back to operating at the same level it is now? What about retirement – wouldn’t you like to some day?
Very few business owners really consider what might happen to their company if there was a sudden empty spot within the team—especially their own position. But life is nothing if not unpredictable. That means you need a succession plan in case a key team member (including you) is suddenly unavailable, whether because of an unexpected firing, legal problems, injury, or death.
According to Forbes contributor Donald Delves, creating a coherent succession plan is one of the most important roles for a corporate board. But you don’t have to manage a global corporation in order for it to be worth thinking about. In fact, small business owners are probably more at-risk for their business being affected by an unexpected event. All of them should ask themselves how their company would operate if they were out of the picture tomorrow, next month, or next year.
What is Succession Planning?
Succession planning is the process of planning for the future—whether that means choosing replacement candidates for key roles in the company or making arrangements for the continuation of the business after the owners or key employees step aside. It’s a plan you put in place to keep the company running smoothly, no matter what happens, expected or unexpected.
Through your succession planning process, you can recruit ideal team members, develop their knowledge, skills, and abilities, and prepare them for their future leadership roles in the company. Your succession plan may even include identifying potential buyers, whether independent third parties or heirs. In all likelihood, it’s a combination of these factors.
Succession planning ensures that the business is prepared for any and all contingencies before they fall out of the sky. The end result is a company running like a well-oiled machine, promoting professional security and a concrete plan for your business’s future.
Succession planning can help your business in seven specific ways.
1. It helps you find the most qualified candidates for key roles—especially leadership positions.
Choosing potential leaders for your business isn’t just a question of experience. Other leadership skills are essential, such as:
- Team building prowess
- Emotional intelligence
- Understanding the company’s values
Forming a succession plan in advance gives you time to gauge which candidates are most qualified to replace existing team members or who you could best trust to take the reins of the company if and when you no longer can.
The heart of the talent management process is highlighting important roles and ensuring that your business has the right people—with the right capabilities, skills, and experience—in the right place at the right time.
Succession planning is key to that.
It’s all the more important when it comes to transitioning your business to a family member, key employee, or third party buyer. There’s a lot of variables involved in those kinds of decisions, and you want to be sure you have a plan in place that guarantees the best outcome for you and your company.
2. It helps you avoid hiring headaches and unreasonable salaries.
When it comes to hiring business leaders to replace current team members (including yourself), seeking out executives from other companies is often a poor choice. In recent years, executive salaries have skyrocketed. Not having a succession plan only makes matters worse, since executives coming from companies would likely demand a major compensation package to justify leaving the security of their current position.
You don’t want to find yourself suddenly so desperate for a replacement that you have to make snap decisions that could harm your business in the long run. By laying plans for transitioning executive positions now, you can avoid dealing with expensive headaches later.
3. It helps with retirement planning.
Too often, business owners wait until the last minute to start thinking about the future of their company once they step down. That can lead to subpar options and rushed decisions, potentially harming the business’s trajectory. It also makes it harder to take advantage of the most financially-responsible and tax-friendly ways of achieving such a transition.
Even if it isn’t an owner that’s stepping down, you want to have a good replacement on standby for key employees leaving your team.
4. It helps you protect your vision and maintain brand identity
While innovation is important for business growth, it can destabilize your brand image. New leaders may not be on board with the core values and identity of the organization. Generally, that takes time. As a result, new leadership can often inadvertently compromise a company’s brand identity, throwing a wrench in the works and confusing customers.
5. It lets the company map a long-term business trajectory.
Choosing candidates to replace existing leaders in a company helps you strategize for more than just the team. It can also highlight vulnerabilities, help you set new goals, and make it possible to create a roadmap for the future.
If you or your team have to train candidates in order to develop their skill sets, succession planning can kickstart the conversation. It also helps you fill knowledge gaps and keep everyone on the team the strongest asset they can be.
Plus, when you’re talking business, you’re talking finances. Replacing leadership positions and transitioning ownership both have plenty of financial factors involved. The sooner you’re making plans for those, the better.
6. It gives certain team members a promise of future advancement, boosting confidence and incentivizing loyalty.
Employees who know that another role awaits them are bound to feel a boost in their self-respect and self-esteem. This increases their value to your business.
Knowing that your company has plans for your next potential opportunity—and what that will entail—reinforces their loyalty and inspires them to greatness. In fact, that kind of trust and assurance is one of the things employees want most from an employer.
7. In the event of a sudden exit or promotion leaving a key role vacant, a worthy replacement is already waiting to step up, ready to go.
How much more true is that when we’re talking about leadership roles or even ownership?
You need plans on hand and ready for action whenever needed. Succession planning lets you set the future of your company in motion—and protect your mission—before someone ends up calling the shots in ways you never wanted.
Then, by having done your homework on the budgetary aspects of a transition of leadership, you can make your exit (or the exit of key employees) and the transition to new leadership as smooth as possible.
Here’s how to get started on succession planning for your business today:
For effective succession planning in your business, you must:
- Identify your business’s long-term goals
- Ask questions such as:
- Who would the ideal successor for you or a key employee be?
- What is your business worth?
- What would your ideal timetable for transition look like?
- What are the best ways to ensure that any transitions of leadership will be financially responsible?
- What are the best tax options?
- Make sure that everyone understands their planned career paths and the roles you are preparing them for.
- Make sure you have contingencies in place so that the company could keep running smoothly if you or a key team member were unable—or unwilling—to keep up their part in the business.
- Make sure your business will stay on the best financial path no matter what comes.
- Follow the plan.
- Stay proactive. No matter what happens, always have someone ready to fill empty shoes and take the lead—and have the financial plans and tax strategies in place for it.
With just those tips, you’re already headed in the right direction for a solid succession planning strategy.
And we can help…
Smart succession planning is essential to your business’s long-term strategy and could be important even in your near future.
When it comes to the financial side of things, it’s worth getting a little help.
We’re ready to talk with you about forming and implementing an airtight succession plan that protects you, your company, and your employees. As Knoxville’s top accounting firm, Culpepper CPA can help you make informed choices about budgeting, spending, tax regulations, and other financial matters.
If you’re ready to get a little expert assistance, just let us know.
We’re looking forward to hearing from you!