Business owners are often so focused on actively running their companies that they may not give much thought to the long-term plan for passing along the leadership baton when that time comes. It's never too early to start considering what a succession plan would look like for your company.
This is particularly true in today's landscape, in which many well-established business owners are beginning to think about retirement. Many Canadian entrepreneurs are boomers in their 50s who plan to leave their businesses in the next few years. According to a report from the Canadian Federation of Independent Business, 47% of business owners intend to exit their business by 2023 although 51% have no formal plan to do so.1 Couple that with the fact that a company's need for expanded skillsets and capabilities may increase, and having a plan to fill such important roles is paramount to helping ensure its continued success.
Succession planning is a critical element of long-term business strategy and is imperative for the longevity and success of a company. Owners who want the businesses they started to maintain operations even after their tenure ends can take steps proactively to put a plan in place that makes this transition as smooth and efficient as possible.
What is succession planning?
Succession planning means having a blueprint in place for the replacement of those who are currently running the business—owners, executives and managers. This transition would happen once the current people have vacated their roles, either due to retirement, death or the pursuit of other activities.
The point of business succession planning is to help ensure this transition happens smoothly, with minimal impact on business operations.
The succession planning process
Your specific blueprint may vary depending on your operation, but here are some basic steps typically involved in succession planning:
- Identifying critical roles. This usually includes the owner(s), key executives and others who play an integral part in the operation.
- List core skills and responsibilities. These are the most important traits and abilities required to succeed in those positions.
- Assess existing staff. This lets you identify potential leaders—and provide time to train them—while also revealing whether you may need to recruit external candidates.
- Create a transition plan. Ideally, this should include steps that can begin now, or well in advance of the actual shift.
- Continually monitor and evaluate the process. As your business needs or staffing situation evolves, you will likely spot places where adjustments need to be made, or where things can be improved.
Advantages of succession planning
It's inevitable that the people now running a business will eventually no longer be there. Failing to have a transition plan in place can cause business operations to come to a screeching halt when leadership roles become vacant.
Succession planning offers several major advantages for your organization:
- Lets you mentor and train your future leaders. Scrambling to throw people into challenging roles without sufficient preparation rarely turns out well for anyone. Starting this process well in advance gives you time to develop the skills of your intended successors.
- Gives you one less worry during an emergency. If one (or more) of your leaders is suddenly and unexpectedly unable to fulfill their duties—say, due to accident or illness—you won't have the added stress of trying to figure out who will take over their role.
- Provides a chance to identify your hidden gems. Thoroughly evaluating your staff and assessing their strengths and interests may reveal people with valuable untapped potential.
- Allows for cross-training and collaboration. By having junior employees work closely with managers, you encourage teamwork and the exchange of ideas. This can lead to improvements and positive results that benefit your business now, as well as in the future.
- Maintains consistent operations with minimal disruption. When the time of transition comes, there will be less noticeable impact to your clients, vendors, staff and other parties who might be affected.
Family business succession planning
Family businesses pose particular challenges and potential complications when it comes to succession planning. These situations frequently involve mixing business with family relationships (and the emotional aspects that go along with them). Any conflicts or tensions that already exist will only be amplified when the topics of business, retirement, and/or death must be addressed. In addition, there are often specific legal issues and tax considerations that often must be addressed with family businesses, depending on how the company is structured.
Some tips for making the succession planning process easier with a family business:
- Start early. Many business owners underestimate the time needed to develop a succession plan, believing they can complete the transition process in a year or two, but some experts say you should plan to devote several more years to the planning process.
- Don't make assumptions. This can be a pitfall with family businesses. Parents or older generations may have preconceived notions about what their children or other younger relatives want to do. An open and frank discussion early in the process can ensure everyone is on the same page.
- Keep it focused on business. Personal relationships can often influence family business decisions. It's imperative that everyone stick to concentrating on what is best for the business as an organization. Enlisting the help of outside parties (such as lawyers or business advisors) who can offer objective input can be helpful.
- Be prepared to compromise. As with any other business situation, this is one that may require negotiations. All parties involved must be willing to listen to others' concerns and adjust their expectations if needed.
- Set realistic expectations. Overly ambitious goals could set the stage for a potential disaster. It's natural for parents to set lofty goals for their children and want them to soar to impressive heights, but setting the bar too high might be setting the younger generation up to fail.
The future of succession planning
While the basic goals and motivations for succession planning are consistent, there are ways in which this process will change as the business landscape constantly evolves. One major shift in the traditional approach is a succession philosophy that focuses more on knowledge transfer and strengthening skillsets that will help meet the needs of the business today, and as it grows in the future.
Business succession isn't just about filling slots on the company hierarchy, but rather assembling a team that can help keep the business competitive for the long-term.
Learn about additional people-related insights to help inspire your business' growth.
This article is intended for general informational purposes only and does not constitute legal advice or an opinion on any issue. It should not be regarded as comprehensive or a substitute for professional advice.