It’s about that time — as baby boomers begin to decrease their involvement in day-to-day operations and step away from their businesses, the big question arises: who will take over the reins? Considering nearly 10,000 baby boomers retire per day in the US, this decision is becoming more and more commonplace. Having a comprehensive succession plan in place for your small business will ease these major transitions so that the business doesn’t suffer.
What is succession planning and why does it matter?
Succession planning is the process of identifying top talent in order to develop new leaders within a business so they may take over when current leaders leave or retire. Having a proper succession plan in place ensures that the business will operate like a well-oiled machine in the future and retain top talent through growth opportunities for ambitious or high-performing employees.
What Should Your Succession Plan Include?
- A list of critical positions within the organization. By first listing out the crucial positions within the company, you’re more easily able to identify where high-performing employees are needed. This will allow you to restructure more efficiently according to staff abilities or find out where gaps need to be filled with outside help.
- Identify positions with high turnover rates to plan for replacements. Where do you see the highest turnover? Is it on ground level with sales people? Is leadership skill lacking in management? The answers to these tough questions need to be addressed. It not only helps with planning successors, but can give you a refreshing look at your structure to find where more training is needed, where you can promote from within, or where you need outside help.
- Inform employees of company structure. Ensure high-performing employees know the roadmap ahead of them so they feel secure knowing they won’t hit a dead end within your organization. By showing them available upward mobility, you minimize the risk of good employees leaving prematurely.
- Identify employees’ skill sets, how well they are performing, and if improvements can be made. You should have already laid out the company structure and which positions are most crucial. So after evaluating employee skill sets, find which person or people would be best-suited for those roles.
- Plan. Once you’ve identified crucial positions and evaluated the best qualities in your employees, you may find that not every job has a qualified contender within your business — but maybe they come close. Plan ways in which you can develop employees’ skills to achieve ideal comprehension and abilities.
How Do You Execute a Small Business Succession Plan?
Once you’ve developed a plan for what your business will look like after you retire or otherwise move on, you need to execute it. The plan’s execution is as important, if not more so, than developing the plan itself.
- Put together a succession planning team. Create a group of trusted, proactive and long-term employees, inform them of your succession plan and give them a role in executing it. This may include leadership training for employees, hiring new prospects, or other responsibilities.
- Align your succession plan to the organization’s strategic plan. Decide if you want to:
- sell the business to investors or key employees: this can be a good choice to ease the pain of transition by handing the reins to someone you trust. They should be business savvy, smart and adaptable. You should have already identified their qualities during the planning phase, but be sure they are actually qualified to lead — don’t appoint them simply because they are a close friend.
- sell your shares: if you decide to sell your shares back to the company arrange for an entity purchase agreement. This is ideal if there are multiple shareholders.
- pass the business on to heirs: you know and trust your family and if you think they are fit to lead your company after your departure, you may decide to pass it on to them. Be sure to pick a single successor who has been engaged with the business for a long time. Just keep in mind that if multiple family members are competing over the opportunity to lead, things can get very messy, very quickly.
- Develop hiring strategies to fill in gaps and as backups in case key employees leave earlier than expected.
Running a business isn’t easy. Presumably, you’ve put everything on the line to grow this legacy and putting it into someone else’s hands is a very heavy decision to make. There’s no scrambling or corner-cutting when it comes to succession planning, so get it started early and be sure to update it as time goes on and situations change. Take your time, fully evaluate, and execute the decision that’s right for you.
To learn more about how Society can help protect your business, contact your local Society Insurance agent