Succession Planning: Where to Start

At some point you’ll leave your business. Your departure from your business may be many years in the future, and it may occur when you decide to retire, or because your health is compromised, or for any number of other reasons. Whatever the eventual situation, a thorough succession plan will smooth the transition and set your business up for success in the future.

A succession plan is an outline of what needs to be done when you close, sell, or transfer ownership of your business. It serves as a guide to everyone involved, and it reduces ambiguity and volatility. It’s an important business tool, but where do you start? Creating a succession plan is actually simpler than it sounds. Here are the building blocks of a solid succession plan.

Put a Plan in Place

The key to succession planning is to effectively identify and develop new leaders who can replace older leaders as they leave the business. Good succession planning increases the number and availability of internal employees who have the potential and skills to fill important positions in the organisation.

Although it’s true that succession planning involves the creation of a hard-and-fast document outlining the plan, it should also include the incorporation of an overall strategy to manage and coach talent on an ongoing basis.

Work with your management team to identify those with potential to assume more responsibility, and create a plan of action to provide critical development experience. In addition to developing talent, discuss the legal and financial issues that must be addressed in hypothetical successions.

Document Your Plan

Once your team has agreed upon a plan, put your plan in writing. Consider your succession plan to be the last word, but update it on a regular basis. People may come and go, and financial information will need to be updated. Review of your succession plan should be an annual agenda item for your leadership team.

Factors to Consider When Starting Succession Planning

Your documented succession plan should be detail-oriented and specific. You’ll want to include the following items.

Proposed Organisation Structure
Key Personnel Changes
Skill Retention Strategies
Training Programs
Registration Changes (registration transfer, membership transfers, changes in business structure)
Legal Considerations (contracts and legal documents, buy-sell agreement, will and testament)
Insurance Policies that would be affected by a change in ownership
Succession Timeline
Risk Management and Contingency Plans

Don’t forget to include financial information in your succession plan:

Current Business Value (obtain a business valuation, if necessary)
Sale Details (minimum sale price, a list of the people who will receive the proceeds)
Buyout Details
Retirement Income (detail of payments required for your income or for pay-out agreements)
Taxation Related to the Transfer or Sale

Seek Advice

Seeking advice is crucial when it comes to something as important as your succession planning. An outside business expert can guide you through sensitive issues, alert you to legal and financial concerns, and help you review your plans. An outside expert brings a measured, outside perspective to the plan to remove the emotion and feeling that planning is a daunting task.

For help creating your succession plan, or to discuss any other business matter, contact us at Altus Financial. Our business experts are here to help you succeed.

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Shane Brennan

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