If you’re an entrepreneur, small business owner, or you are looking to start your own business at some point, one phase of the planning process you probably haven’t given much thought to is succession planning. At the beginning of your entrepreneurial adventure, this is to be expected.
However, the problem is that most small business owners (58%) do not create or have a succession plan at all. At this point you might be thinking, “What is a succession plan, and why do I need it?”
A succession plan defines how your business should replace you, the founder, when you leave your business, be it by design or circumstance. In the event that something happens and you are not able to run your business, what would happen to the business? Would it be able to function without you?
If you have a well-thought-out succession plan in place, then theoretically your business should be able to function without you because you would have a plan and a successor who'd ensure your business continues to thrive when you are not there or the time comes to replace you as the founder.
So, if you want your business to outlive you, you should have a good succession plan for your business.
What a Good Succession Plan Entails
There are all kinds of considerations that go into creating a solid succession plan, depending on your business. Some of the main items you need to include and address in your plan are:
- Choice of a successor: If you already have a successor in mind, then you need to say so in writing in your succession plan. If you don’t have a specific person in mind, then you need to provide a protocol for your business to find your ideal replacement.
- Distribution of property: Your business interests will need to be distributed once you leave. If you pass away, then you’ll want to have what’s known as a buy-sell agreement in place so that your interest falls into the right hands.
- Type of business form: Sole proprietorships, LLCs, and partnerships all have different legal requirements when it comes to succession planning. You’ll want to discuss your situation with a legal expert beforehand to ensure you do everything correctly.
- Taxes: If you have outstanding debts or unfinished business, you need to clarify how it should handled after you leave. Do you want your wealth be donated, distributed to your family, or invested in a fund of some sort?
- Benefits: When you leave your business, will you choose to continue receiving benefits like health care or retirement benefits? If so, you need to discuss this with any co-founders or partners.
If you want to name your successor beforehand, here are some questions to ask yourself:
- Are you planning on hiring internally?
- Do you have a family member in mind?
- Are you considering multiple candidates for the role?
- Does your business have a leadership development plan to train your replacement?
There are a lot of factors that go into a thorough succession plan; that’s why it’s crucial to start thinking about it sooner than later!
Tips to Find the Right Business Successor [Infographic]
As already mentioned, succession planning is crutial to the survival of your business after you're gone. This is particularly true of family businesses, considering that 70% of family businesses fail because of inadequate or lack of a good succession plan.
When picking a successor, consider internal candidates who you think would be a good fit. Inform stakeholders in your business about your choice of successor and get their thoughts and support.
Start grooming your successor for the role as soon as you can when you have stakeholders onboard. Continue to assess your successor's fit, considering the company culture and their compatibility with other employees and leaders in the company.
Check out the infographic below from the folks at Bestow to learn more about succession planning. The graphic shows how to find your business’s successor, as well as what to keep in mind when creating your own succession plan in the future.