A strategically structured scheme for business succession planning
One of the main questions I ask business owners is, “Do you have a succession plan or exit strategy for your business?” I also ask employees: “Do you know if there is a succession plan or an exit strategy in your company or organization?” It may surprise you to learn that, in my experience, more than 90% tell me that they do not have a succession plan or exit strategy. A 2004 CIBC Small Business Outlook Survey (conducted by Decima Research) indicated that 39% of small business owners plan to sell their business and 15% plan to have a family member take over. However, two-thirds (67% of the entrepreneurs surveyed said that they had not yet addressed the issue of who would take over the business. For me, that result is very revealing and, frankly, it is a motivator to write this article.
Succession planning is a critical factor for the long-term success of any business. Leadership transitions in business affect the continuity of the entire organization, employee retention, customer retention, and return on investment. It is essential to create and implement a process that generates visibility, responsibility and a greater integration of all facets of the business.
In another article, Your Strategic Thinking Business Coach provided seven (7) strategic actions that must be taken to strategically structure a succession planning process. Those seven (7) strategic actions are:
Strategic action n. # 1: Begin the succession planning process early.
Strategic action n. # 2: Determine and clearly communicate the purpose, goals, and scope of the leadership succession plan or program.
Strategic Action # 3: Clearly define the desired and required qualities of the new leader.
Strategic action n. # 4: Develop a clearly focused leadership development strategy.
Strategic action n. 5: Develop a talent management process that will incorporate strategic thinking for specific development opportunities for future leaders.
Strategic action n. # 6: Identify future leadership candidates by developing a system to assess current and future leadership needs.
Strategic Action # 7: Identify a system for communicating information to ensure that succession and / or leadership development programs are in line with the strategic needs of the business.
After developing the strategic action list, it was important to develop a general outline to present the strategically structured succession planning elements. That scheme is the following:
STRATEGICALLY STRUCTURED SUCCESSION PLAN OUTLINE
I. GOALS AND OBJECTIVES
Develop a vision statement for your business
Develop a mission statement for your business
Develop a list of your core values and guiding principles
Develop short-term and long-term goals for your business
Identify your business stakeholders
Develop your personal vision
Develop your personal goals
Develop your retirement goals
Build a team of advisors for your succession planning effort
Establish the need for a succession plan.
II. ESCAPE STRATEGY
Develop options for your exit from your business
Review the options developed for your exit from business.
Select your option for your exit strategy
III. BUSINESS VALUATION
Get professional advice to determine the value of your business.
Determine the value of your business
Determine the present value of your business assets and liabilities
Determine the goodwill value of your business
IV. BUSINESS STRUCTURE
Identify and quantify your company’s debt
Recruit and retain productive employees
Business structure to maximize value
Document the key processes and procedures used in your business
V. TAX CONSIDERATIONS
Develop financial goals
Identify the tax implications of your current business
Plan and implement a tax strategy to minimize your taxes
SAW. LEGAL CONSIDERATIONS
Hire professional legal advice
Develop a buy-sell agreement for your business
VII. REAL ESTATE PLANS
Hire a professional estate planning advisor
Develop an estate plan
VIII. SELECTION OF SUCCESSOR
Develop specific criteria for your successor
Recruit and select successor based on your criteria
Communicate the successor selection to your stakeholders
IX. SUCCESSOR TRAINING
Develop a list of characteristics and skills necessary for your successor.
Develop a training plan for your successor
Develop a coaching / mentoring plan for your successor
Set a timeline for your successor plan
X. CONTINGENCY PLAN
Develop a contingency plan (based on the “What if?”)
Investigate and identify insurance needs (disability, personal life, critical illness, business, key person, etc.)
Select and train a key employee to take over in the event of an emergency or unforeseen event
Communicate your plan to stakeholders and advisers
XI. IMPLEMENTATION PLAN
Document the roles, responsibilities, and expectations regarding the ownership transition.
Identify a facilitator to ensure that the succession process takes place.
Identify your timeline for the management transition
Identify your timeline for your business ownership transition
Identify your timeline for your complete exit from your business
Document the succession plan
Document how to proceed with the succession plan in case of unforeseen events (accident, illness, death)
Document transition or exit strategy to inform family, employees, customers, vendors, community, and all stakeholders