It may sound strange when you are starting a business, but succession planning is a very important aspect of a business plan. And it’s impossible to predict exactly what is going to happen that will lead you to hand over your business, so this is not a fix-it and forget it proposition. How succession happens may change over time as your business matures and takes turns you never imagined or dreamed of in the early days.
But every article we read on the subject is clear. It is never too early to put a succession plan in place. Your business does not need the added potential risk and disruption that can come from not having a succession plan in place. So no excuses – you’re not too busy, or too distracted, and you are not immortal, so now is the time to put a succession plan in place.
According to the National Association of Corporate Directors, fewer than one in four private company boards say they have a formal succession plan in place.
Succession usually happens either with a family member stepping into the leadership role, or someone from outside the family taking the helm. There are challenges either way, but the biggest challenge is in having no plan.
Scenario #1: Family Ownership Continues
Most business owners hope for their work to go on after they have passed the business along, and often they are hoping to pass it along to the next generation. If the kids are interested, you’d think this would be simple. But with family dynamics in play, family business succession is often messy.
Having clear expectations is key. Bobby Stover outlines a few key challenges that family businesses face in succession and keeping these things in mind resonates with how we do business here.
Stover sites the following big challenges that need to be addressed for a smooth transition:
- Breakdowns in trust and communication within the family
- Inadequately prepared heirs
- Lack of a family purpose that defines how to use wealth
A good succession plan will catch these challenges before they avalanche into huge problems.
Scenario #2: Succession with a Non-Family Member
The kids may not be interested or gifted to take on the family business. That’s ok. Even if you start out planning succession within the family, you’ve got to have the flexibility to read the writing on the wall and change course if necessary. Or maybe this was always your thing and the kids were never involved.
It still takes intentionality and planning. You will want to keep your eyes open for a good fit for succession. And—this is important—when the time is right (long before you step away from the business) you need to communicate with them and get very clear about your intention and their interest. You’ll want to mentor this person along the way, so they are ready to step into the lead role when the time comes.
For a good succession plan, you might consider working with a business coach or consultant who specializes in succession planning. They can help you through things like valuation – an independent source saying what the business is worth and why. They can also help you adapt your succession plan as situations change.
It might seem odd to think about what will happen with your business when you are no longer involved. But you have got to put thought into it, and it is never too early. A good succession plan can mean the difference between a business that thrives for years to come, and one that closes shop when you walk away.