Business owners or senior executives when starting or running a business of any size may not begin each year thinking about exiting the business or creating a succession plan. Yet, succession planning should be an essential part of every business’s planning process because it impacts the entire organization. 

What is Succession Planning 

Succession planning is broadly defined as the process of identifying critical positions within an organization—at the top and major roles throughout the organization—and then developing specific action plans to identify and develop individuals to fill and succeed in those positions. Essentially, that means having the right people in the right positions so that the organization succeeds in the present and thrives well into the future.  

At the top of a company, succession planning means passing leadership roles onto another person or persons. It can also be referred to as replacement planning. 

In a small business, succession planning must take place when owners are planning to retire and need to prepare to hand off his/her leadership responsibilities to a successor. A solid succession plan is especially critical to have in place if an unexpected event transpires such as the illness, disability, or death of an owner. Without a well-developed succession plan, the family, heirs, or partners of an owner could be left to sell a company for less than it is worth or to have no clear path to guide the next steps for the business.   

The Benefits of Succession Planning 

A solid succession plan can help ensure the continued survival and success of every business. It can help an organization to: 

  • Provide a path to transfer business ownership when that time arrives. 
  • Prepare the business to handle unexpected events. 
  • Allow an owner to retire, maintain his/her lifestyle, worry-free from the operational needs of the business. 
  • Provide for the needs of heirs, partners, employees, and other stakeholders. 
  • Define the development of key talent, as well as ensuring that key staff members understand what is expected of them. 
  • Identify skill gaps and specific training needs.  
  • Adapt to demographic changes and talent scarcities, as well as to replace special competencies. 

13 Tips for Effective Succession Planning 

According to Forbes, many small and medium-sized businesses lack satisfactory succession plans. The most common reasons are that owners don’t know where to start, or they fail to plan for a transfer of leadership and ownership, thinking that it may be necessary “someday.”  

Here are 13 tips for effective succession planning: 

To strengthen an organization and to help ensure its continuing success: 

  1. Identify the significant business challenges that your enterprise may face in the next 1-5 years. 
  2. Identify the critical positions that will be necessary for continued business progress. 
  3. Identify the most critical skills and competencies that will be needed in the near future. 
  4. Evaluate and pinpoint all high-potential current employees and let them know your future expectations. 
  5. Consider any talent gaps that your business currently has or may have in the near future. 
  6. Develop your talent pool through effective experience and skill management as well as strategic recruiting. 
  7. Utilize effective morale-boosting and career retention strategies. 

To guide ownership transition planning: 

  1. Determine when you might exit the business and determine a timeline that will make an ownership transfer smooth. Make the move when the business is running well. Make the move deliberately and without undue haste. 
  2. Determine how you can exit the business. That can include selling the business to heirs, business partners, key employees, or to an outside buyer. 
  3. Conduct a thorough business valuation. 
  4. Make sure that all financial statements are in order. 
  5. Document operating processes. 
  6. Identify your succession plan and your successor. Announce your plan and its timetable. Tell key employees first and then be transparent with all other employees and stakeholders. It can be highly useful to seek outside assistance with your succession planning. 

Seek Professional Business Coaching Assistance 

Contact Blue Diamond Consultants for coaching services based on extensive experience through previous success for home service businesses.