What is Succession Planning: What it is, Why it’s Important, When to Begin, and How
Many people treat succession planning like retirement planning, in that if it’s not time to retire, then it’s not time to plan. However, business succession planning is not retirement planning, and much more is involved.
What is Succession Planning?
Business succession planning is the strategy or process used to identify and develop future leaders in your business and prepare your business and employees for success after you leave it. Sound succession planning positions you to lead the transition process as you invite others to join you in the journey of your business exit, and your business to succeed in your absence.
Why is Succession Planning Important?
Creating a succession plan to transition out of your business may not appear at the top of your priority list, and procrastination is common. But let’s face facts: You will not run your business forever. You know it, your employees know it, and so do your customers. All of them have a stake in the smooth transition of your business and want to know that you are safeguarding the future of the business and their livelihood. Ultimately, owners begin to plan for their business succession because they care about people; those inside and outside of their companies.
When I’m asked what succession planning is and why it is important, I always start with relationships. That’s not the conventional approach, yet it is one that has been amazingly successful for the business owners who have used it. To qualify as successful, a business transition must allow owners to leave their businesses in a way that 1) keeps healthy their important relationships (e.g., with family members, business partners, key employees, and customers) 2) achieves their most important goals, and 3) aligns with their personal values.
When Should You Begin Succession Planning?
Many business owners wonder, “Is it possible to start planning too early for the transition out of my business and into the next adventure?” In response, I’d ask, “When is it too soon to give yourself multiple options and opportunities about how, to whom, and when you should transition your business?”
Knowing that the sooner they start creating a succession plan, the more choices they have, most owners find that it’s usually too soon to start planning.
No matter your goals, planning your transition and your life after (your next adventure) can be exciting instead of intimidating. If done purposely and thoughtfully, succession planning can, and should be, an enjoyable and deeply satisfying experience. Not knowing all the answers at the beginning of your transition journey, that’s perfectly normal. What matters is that you begin.
Overview of the Succession Planning Process:
The transition process that I’ve found to be most successful is one that 1) uses an owners’ goals as its foundation, 2) harnesses time as a tool and 3) involves a team of experts.
Identify Your Goals
A successful business succession plan satisfies your most important goals. Take a moment to jot down the outcomes or objectives you want the transition out of your business to achieve. Perhaps you want your children to run and grow your business. (If so, read more about the questions you should ask before creating a family business succession plan in our blog.) Perhaps you want your business to advance to the next level with a leader outside of your family or employees, so you may be considering an external business successor whose passion, capital, and/or experience can take your business to the next phase of growth. Identifying these goals will help develop your business succession plan.
Make Time Your Ally
Owners who successfully navigate the business succession planning path use time as a tool. They recognize that:
- The longer you put off thinking about your business transition, the more daunting the task becomes. We’re all great at letting questions spin in our heads and create anxiety. Giving yourself more time can make the succession project manageable, even fun.
- Succession planning is not a one-time event or single destination. Instead, it’s a journey and can be your greatest achievement in a successful business career.
- The longer the runway to your ultimate transition, the more options you have available as you plan and then resolve dilemmas that arise along the way.
Assemble a Team of Experts
Done well, business succession planning benefits you as the business owner, your business, your successor, and your community. It relies on a team that includes, at a minimum, a transition strategist or consultant, an accountant, a lawyer, and a financial advisor. These professionals guide you in navigating the many facets of your transition journey to reach the destination you choose. Your experienced advisors are invaluable because they know the common pitfalls, roadblocks, and complications that too often derail business transitions.
Not Ready to Begin Business Succession Planning Yet? Do Some Initial Brainstorming
If you’re not ready to dive right into the business succession planning pool, dip your toe in the water! Write down your initial thoughts about what matters most to you when you transition and how you want the people you care for to feel. To learn more, read our blog “Succession Planning Process: Six Questions a Business Owner Must Answer.”
What are Succession Planning Best Practices
As you consider succession planning, there are several best practices that optimize the odds of success:
- Put relationships first. A business transfer is successful only if it protects or enhances the relationships with the people who are important to owners.
- Take charge of your journey. Only owners can create transfer strategies that generate successful outcomes for themselves, their companies, successors and families.
- Don’t expect perfection. No transition meets everyone’s objectives, and properly crafted succession plans should achieve the most important ones.
- Look beyond your exit. Owners who understand that beginning a new and meaningful phase in life is part of a business transition are motivated to do the work necessary to create succession plans.
- Don’t let your destination choose you. Owners who fail to create succession plans lose an incredible opportunity to take charge of what they want the transfer of their businesses to accomplish.
- Cut the ties of mutual dependency. Unless the ties of mutual dependency between owners and businesses end, owners struggle with organizing the next phase of their lives and companies struggle without their former owners.
- Put your succession plan in writing. Putting a succession plan in writing requires careful consideration of alternatives, the anticipation of possible roadblocks, and it holds everyone accountable when circumstances change.
To learn more about succession planning best practices and sustaining your business’s longevity after your exit, read our blog here.
Succession planning is a privilege that only successful business owners enjoy and an incredible gift to yourself, your family, successor, employees, and community. If you want to leave your business in the capable hands of a successor, you should begin your transition journey today so you can choose and live an engaged, meaningful, and fulfilled next adventure. To learn how members of the TIGER 21 community navigated life after a business exit, read our Life After Selling a Business series.
About Elizabeth Ledoux
Elizabeth Ledoux is the founder of The Transition Strategists and serves as a Denver Chair for TIGER 21, the premier peer membership organization for high-net-worth entrepreneurs, investors, and executives. She is a thought leader and speaker on the topics of succession planning, navigating transitions for companies and leaders, family business, strategic growth, and the business journey. Elizabeth is the host of the The Transition Roadmap podcast, and author of three books for business owners and entrepreneurs including her latest, It’s A Journey – The MUST-HAVE Roadmap to Successful Succession Planning.