Who will be the successor in your business? Putting a succession plan in place helps to ensure your business’s stability when you step aside or if unforeseen events happen.
For a succession plan to be executed properly and legal battles avoided, they need to be made well in advance. Further, the benefits of a succession plan can include a smooth transfer of ownership and leadership and continued job security for your staff.
Decide on your successor
Deciding who will take over from you is a difficult decision. Start by putting together a list of people who could potentially lead the business. At this point, include all possible candidates, whether they’re likely to take over or not.
Then have a look at each person on the list and consider what interest he or she has shown:
- Business management skills, including financial and human resources management.
- A passion for the business.
- Leadership skills.
- Strong relationships with customers, suppliers, and other employees.
If people haven’t yet had the chance to demonstrate specific skills, give them a task involving those skills. For example, this could include introducing a new product or opening a new store.
After evaluating each person’s skills and qualities, you may have a shortlist of two or three people or may even have a clear contender.
Analysing a shortlist
If there is more than one person for consideration, consider whether they could handle leading the business together as a team. If this isn’t a possibility, take some time to decide who is the best candidate. Observe each person while they’re working to gain extra insights into their:
- Skills
- Personality
- Ability to deal with difficult situations
If you’re finding it difficult to make the final decision, ask for some outside help. A person outside of the family who knows your business well and who you trust is likely to give you objective opinions based on evidence rather than emotion.
Train your successor
Once you’ve identified your successor, it’s essential to train them thoroughly because they won’t have all the necessary expertise, skills, and experience to take over the running of the business.
Start by getting your successor to work in every area of your business for a while so that they will know exactly what’s involved with it:
- Financial management.
- Sales and marketing.
- Customer services and other operations.
Create a detailed training plan
It is vital to develop a detailed training plan that will give your future successor access to all the information they will need to run the business on a day-to-day basis. Pass on as much of your knowledge and experience as possible.
A lot of your expertise will be learned from experience and can’t be written down, so you might not even be aware of how vast all of your knowledge is until you begin to mentor your successor.
It can sometimes be challenging to give your successor the space needed to lead, make mistakes, and then learn from those mistakes, but it’s essential if their training is to be effective. Be aware that their leadership style will usually be different from your own.
Help your successor to hone and develop skills in areas where they may be weak. Everyone has their strengths and weaknesses. It’s wise to consider if your successor may need help in an area from someone else after you’ve stepped aside.
Decide on your future position
What role in the business, if any, will you have once you’ve retired?
- Will you still be involved to some extent? If so, to what capacity will this be?
- Will you remain on as an adviser or as a part-time or casual staff member during busy periods?
- What effect will your presence be likely to have on your successor and the other staff?
It’s essential to address all these questions in advance and include them in your succession plan.
Determine when you’ll step aside
It’s a wise idea to set a date when you’ll transfer the day-to-day running of the business to your future successor. For example, this could be on a future birthday. According to SCORE, a non-profit organisation that provides advice to small businesses, a succession plan should be started fifteen years before this date.
Setting a date will give you time to prepare for your retirement, your successor time to prepare to take over, and your other staff time to anticipate the change in leadership.
As the date approaches, it’s a good idea to gradually become less involved in the business’s management as your successor slowly takes over the leadership role.
Plan an exit strategy
It’s important to plan your exit strategy from the business considering all the investment, tax, and legal implications of transferring the ownership. For example, transfer of ownership may be subject to a gift tax if your successor buys the business for less than its ‘fair market value.’
Seek the advice of your lawyer, accountant, and other advisers, such as business valuation experts and investment experts.
Find out how you will transfer ownership of your business. The most uncomplicated and most straightforward type of business for transferring over ownership is a sole trader because you have the exclusive right to sell it to whomever you want.
If your business is a company, partnership or trust, other rules will apply. In these cases, ensure you plan your exit strategy on expert advice.
Effective succession planning reassures you that your business will remain in good hands once you’ve retired. It’s wise to begin your succession plans as early as possible and seek as much advice as you can to help make the transition as smooth as possible.
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