15 Sep 2022
By Blaine Bagley
As a business owner, you've spent years building your business and hiring the right people for the right job. That responsibility doesn't end once you decide to step away; in fact, it becomes even more important. In this article, we'll take a closer look at some of the roadblocks that business owners face when creating a succession plan, as well as the steps that you should take to help ensure the future success of your business.
(photo credit Fizkes stock.adobe.com)
…Starting to plan too late
Chances are, you have a lot happening on any given day, and that may not include planning for succession — until it's too late. Before you start planning for retirement and beyond, you need to seriously begin thinking about what's going to happen once you're gone. While there's no cut-and-dried answer on how long this can take, on average, you should plan on an effective succession plan taking anywhere from 12 to 36 months, from beginning of planning to completion.
…No formal plan in writing
Simply having verbal promises in place isn't enough for an effective succession plan. Everything pertaining to this plan should be put down in writing. A written process, such as who will be taking on what, what important aspects of the business will be affected, and the value of your company should be included here. Never assume that important information, such as internal processes, is widely known by others within your company. Include detailed information about your role and responsibilities within your succession plan.
…Not involving professionals
With a succession plan often comes legal implications. If you take the necessary steps to prepare for these issues as soon as possible, the smoother the transition will be. If you're not already working with a business attorney by the time you start planning succession, this is a great time to start. Moreover, when a business changes hands, there may be additional taxes that are owed, which correlate with the value of your company. When this valuation process is done correctly, with the help of professionals, it will make it much easier to figure out how much is owed.
…Choosing family as successor
77 percent of small businesses in the United States are family-owned. This can add an additional layer of difficulty when it comes to choosing someone to take over the company. In fact, almost 75 percent of family-owned businesses fail to pass beyond the first generation of owners; that number increases to 85 percent by the second generation, with 95 percent failing beyond that. These numbers can be tied back to a number of factors, including family conflicts, informal leadership roles, lack of communication, and more. Before you decide to have a family member take over, gauge their willingness and qualification to be a part of the next chapter.
…Pushback from the inside
If those within your business push back against your plan, the chances of it being successful narrow down. While there's no way to make every single person 100 percent happy, you can make compromises (where possible) to help ensure people are onboard. For example, you can identify more than one person to potentially take over a role, and then come up with a list of criteria with other decision-makers to give everyone a fair chance to take over.
(photo credit Fizkes stock.adobe.com)
5 Steps for Creating a Succession Plan
Because every business is built differently, there isn't a "one-size-fits-all" solution for succession. There are, however, general steps you can take to help ensure a smooth and easy process. A succession plan isn't a one-and-done process. It should be thought of as a living document that needs to evolve with your company when new challenges and issues arise.
1. List out the challenges that both your business and industry may face
You've been around long enough that you've faced and overcome a lot of adversity. By identifying the challenges your business may face in the future, you can come up with the right moves to combat them beforehand, helping you to save time and resources. Break these down into short-, mid-, and long-term issues. The more specific these are to your business and industry, the better prepared you'll be.
2. Identify important roles within the organization
Throughout your tenure, you've worked closely with many in your company, so you know which members of your organization are critical to your success. With some of these replacements, you may know in advance that a role will need to be filled (such as a planned retirement), but in other situations, it may be a surprise. Either way, it helps to have a contingency plan in place to replace these roles quickly, helping to reduce knowledge gaps.
3. Target potential replacements for these roles
Once you identify the employees that will potentially need to be replaced, you can come up with a plan to find the best fit for them. Don't forget that the right fit may not be too far away. There are several benefits when it comes to promoting from within, including improved company morale, lower costs associated with the hiring process, and more empowered employees. Don't forget to include back-ups in the event your first pick is unable to take over.
4. Implement a career development plan
Once the employees and proper replacements have been identified, come up with a plan that is as detailed as possible. This should include a handover period, where the new person works alongside their counterpart, taking on more responsibility over time. Not only will this provide an employee with the opportunity to gain first-hand experience in the role, but it'll help capture the knowledge needed to be successful in that role, so you don't lose anything during the transition.
5. Finalize a transition timeline
Now that you've collected all of the pieces, it's time to put everything together. While you've taken every precaution during the planning, the unexpected can still happen. By creating a plan that allows for these hiccups, you're more likely to stay on track. If plans keep getting pushed out, it may cause people to seek opportunities elsewhere, putting you and your plan back at square one.
Blaine Bagley is SVP, Consumer Home Improvement Lending Operations, at EnerBank USA. EnerBank has years of experience in home improvement lending, and has developed products and services designed to meet the specific needs of homeowners and contractors alike.
EnerBank USA | enerbank.com
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