When You Should Develop a Succession Plan for Your Business

Succession Planning

 Larry Guess By: Larry Guess
When You Should Develop a Succession Plan for Your Business
Most savvy business owners develop a business plan that includes an exit strategy. However, many companies fail to put a succession plan in place. In fact, only 34% of family-owned businesses have a succession plan, and those are usually very informal — meaning most don't survive for later generations. 

A succession plan isn't the same as an exit strategy, which is limited to merely transferring ownership to another person or entity. Succession planning is a multifaceted strategy comprised of several critical components beyond ownership transfer, including a longer term strategic plan, financial plan, leadership transition plan, and governance plan. The process ensures that the company will continue running smoothly even after a founder or executive leaves. 

What is the Succession Planning Process Like?  

Developing a succession plan involves more than simply putting together an informal exit strategy. The succession planning steps include five main phases: 

Step 1: Determine the Crucial Roles

  • Determine critical positions and day-to-day responsibilities required for continued success 

Step 2: Develop Descriptions of Crucial Roles 

  • Select competencies and expectations needed to meet business challenges 

Step 3: Identify Candidates to Fill Crucial Roles

  • Consider employees who have demonstrated high potential

Step 4: Create a Training and Development Plan 

  • Develop a talent pool of talent that can step into the critical positions  

Step 5: Reexamine the Succession Plan Annually 

  • Consider what's changed or remains accurate, and repeat steps 1-4 as needed.

As you can see, succession planning is closely tied to your business strategy and goals. Engaging leadership and staff throughout the process can ensure a smooth transition. This applies whether you have a small family business or a large corporation with thousands of employees. 

When Should I Make a Succession Plan?  

If you don't already have a succession plan, the time to make one is now. That's because it's nearly impossible to predict the future and unexpected events. Sure, you can create a succession plan a decade before a founder anticipates retiring or a few years before a business merger or sale. But the timeline often happens in a much shorter timeframe due to various unforeseen reasons. (E.g., new opportunities, health issues, etc.) 

For this reason, it's never too early to consider a plan for how you want your business to continue without you—ideally, the earlier, the better. It's not morbid or negative thinking, it's smart and strategic. In any case, you want to begin succession planning when your business starts to take off. As your business thrives and grows, it becomes even more crucial to protect everything you've worked so hard to put into your company — money, time, energy, resources, and your heart and soul. 

Creating a plan doesn't have to feel like an overwhelming task. Just keep in mind that it can be time-consuming to get your leadership teams together and work on managing talent for critical positions. Grooming staff for high-level positions can't be done overnight, so consider getting your plan together as soon as possible so you have the time needed to invest in making those things happen well.

Who Can Help Me With a Succession Plan?  

If you own a large company, the board of directors typically oversees succession planning. When a business changes, it affects the founders, employees, and shareholders alike. As a small business owner, you likely wear many hats. The thought of wearing another one to develop a succession plan might make you cringe. Chances are you don't have the time or don't know where to start. In a family-owned business, it can be even more of a challenge because you may be navigating heated emotions and expectations.

You can write one yourself using various succession planning tools, But there's nothing wrong with seeking assistance with your succession plan, especially if you or your board don't have the know-how to make it happen. Often, having a professional lead the plan can be better. As experts in their field, they can save you time, keep you accountable, and offer an objective assessment. Including a financial advisor is also instrumental to succession planning success, as they can evaluate how the proposals will relate to your business or personal financial planning needs. After all, no one wants to leave a steady stream of income blindly without knowing they're set up for success as well.

Succession Plan Examples 

A lot can be learned from other companies that have created succession plans. One of the most notable succession plan examples is Amazon.  

In 2021, Amazon announced that CEO and Founder Jeff Bezos would transition to the executive chair, and Amazon Web Services lead Andy Jassy would become CEO. At that time, Amazon reported $125.6 billion in revenue in its fourth quarter (an increase of 44%), making it the largest ever, even beyond what Wall Street expected.  

That illustrates how crucial a sound and robust succession plan can be when key players change roles. During the previous years, Bezos began delegating more operational responsibilities to his high-level executives. Your talent pool and career development are huge factors that can impact the success of a business when a founder or executive leaves an organization. Not every business is Amazon, but the tenants still apply. Start early, develop talent, and understand the future of the company and your personal financial planning needs.

Final Thoughts 

Many founders and business owners put everything they've got into building a credible and successful business. Unfortunately, they often overlook one of many ways to protect it — succession planning. It's imperative to take time to develop and implement a succession plan (right now), whether for an emergency or in the long term. That way, you always have a good supply of talent when the need arises.  

Beyond a dedicated team assisting business owners plan their succession, Plancorp offers various financial services, including Wealth Management, Corporate Retirement Plans, and Institutional Asset Management. We have an elite team of wealth managers with the knowledge to help you apply your business succession plan to your personal financial plan. Financial freedom and peace of mind can be within reach. Take our financial analysis and we'll analyze which aspects of your financial plan can be improved.


Succession Planning

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After successfully selling his share of a business, Larry joined Plancorp in 2016 to lead our Exit Strategy Advisors division. Thanks to his extensive experience buying and selling companies in both the private and public sectors, as well as his time consulting in this arena, he’s able to connect on a personal level with clients looking to chart their own transitions. More »