The importance of succession planning is often underestimated, which can make it difficult for business owners when it comes time for a change in leadership. A succession plan is important to have in place before it is needed. In some companies, the Board of Directors is responsible for creating a succession plan. However, as a business owner, you may not have a Board of Directors, leaving you with the responsibility of creating a strategy to maximize the potential for the success of your business after you retire. For many, it is difficult to think about someone else leading their company, and while it may not seem like an immediate priority, succession planning is one of the most important steps business owners can take to ensure that their company continues to succeed.
Ideally, a succession plan would consider every possible scenario when it comes time to make personnel, financial, tax, legal and operational business changes. Here are a few important factors to consider when developing a succession plan, and how they can benefit your business long-term:
- Start with the most obvious. A succession plan must include a successor. While this can serve as a method of identifying strong employees, it is also important to recognize how other employees’ positions may change as well. It is possible that the roles and responsibilities of the entire senior leadership team may change as a result of hiring a new head of the business. It is important to know if there are any additional personnel changes that should be made. While the answer is different in every scenario, it is important to think through how one personnel decision may alter other parts of the business as well.
- Consider the financial factor. An effective succession plan includes a thorough analysis of not only ensuring positions are filled, but also accounting for when a position may become available. If a role needs to be filled, it is far less expensive to promote someone from within the company who already understands the structure than it would be to hire a recruiting firm and train a new employee.
- Prepare your employees for the plan to take place. Perhaps one of the best ways to ensure that your business has a smooth transition is to promote a culture of strong leadership, growth and business values. This will help ensure your employees have a smooth transition from one leader to another and maintain their optimism for the future. This outlook will also encourage employees to remain as committed to the succession plan as you are.
- Consider outside help. Your business represents a lifetime of hard work and commitment, so sometimes it can be difficult to make impartial business decisions. Whether you inherited the business or built it from scratch, you may want to consider seeking outside help to learn more about succession strategies and discover the best option for you and your business. In order to fully understand the best options for you and your company, be sure to consult with your own legal and tax advisors closely about your circumstances and planning. Also, consider taking the time to meet with a team from your bank to learn about all of your options. QCBN
By David Dinerman
David Dinerman is the Senior Business Relationship Manager with Wells Fargo’s Business Banking team in Prescott.