Succession planning is an integral part of ensuring the longevity of your business. Find out why it makes good business sense and how succession planning works.
This article is published by Modoras Accounting (QLD) Pty Ltd V11022019
Why it Makes Good Business Sense to have a Succession Plan
The benefits of succession planning are far-reaching. From protecting your business legacy through to business continuity, it is advantageous to a business to prioritise this type of forethought.
This article explains how an effective succession plan can help your business and what succession events may look like for you.
Why it makes good business sense to have a succession plan
It helps your organisation be prepared
A change in leadership or employees leaving can mean major upheaval for your business. Having a well-planned succession strategy in place means that changes can be managed with minimal impact. It also means that hiring can be straightforward knowing you’ve already identified the type of person needed for any senior leadership roles.
A succession plan helps to identify key employees for development
A part of succession planning is identifying key employees that may have the potential to be placed in new roles when succession events occur. This can have a dual effect for your business. Firstly, you are showing your employees there is a development path for them which can help to keep them motivated. Secondly, it enables you to identify in advance any upskilling required so staff can step up at a critical time.
Being proactive means there is less disruption to business
Poorly managed leadership and staffing can have a serious effect on business productivity. And the ramifications of this can stretch across many areas of a business. It can lead to customer expectations not being met and a loss in profitability as well.
An effective succession plan has detailed actions that need to take place once a succession event occurs. And if these are tested in advance for suitability and robustness, they can help to manage change effectively and minimise disruption.
Helps maintain brand identity
It’s not unusual that an owner will feel protective of the brand they have built. In the case of an ownership change, a formal succession plan usually means there’s an agreement between an outgoing leader and his/her successor. This means that both have agreed to the way the transition will take place and it’s likely the brand will be protected.
Maintains the legacy you’ve built
It might be time for you to step away from the business that you’ve created and nurtured, but it’s understandable that you’d like for the business to maintain the values you’ve instilled over the years. Succession planning can help with this.
Improves investor confidence
There’s no better confidence booster for an investor than seeing a business that has prioritised planning for future events. As part of an overall risk management strategy, knowing there’s a succession plan in place can alleviate investor concerns and help to maintain the organisation’s value in the market.
Succession events that may happen in your business
The objective of a good succession plan is to provide guidance and action plans to minimise business disruption during succession events.
The planned or unplanned departure of a senior manager or key employee is when your succession plan should kick in. You may have an employee ready to step up into the role, or have a clear skillset you’ll be recruiting for.
Usually this relates to the owner of the business deciding to step away. They may still maintain a link to the business and this will be outlined in the plan. They may also decide to retain ownership of the business and put appropriate leadership in place,
Selling the business
The owner may sell the business to an employee or family member and the way to manage the transition period will have been documented ready for action.
Whether it’s the death of an owner, senior manager or employee – your succession plan should have directions to assist with taking action during what will be a difficult time. A succession plan takes the uncertainty out of the situation and assists with decision making. Ownership of the business may be determined by the person’s will.
What happens when it’s time to implement your succession plan?
If you’ve got your succession plan in place and an event occurs, your plan will dictate what steps you need to take to keep your business running as seamlessly as possible. Sometimes you’ll have prior warning such as in the event of a retirement or business sale, but there are other times where you may have little notice.
It’s always best to prepare early. Not only with the succession plan but also the subsequent implementation of action once you’re aware a succession event will occur.
Here are the steps you need to take when your business is dealing with a succession event.
Establish what part of the plan needs to be activated
If you’ve completed a comprehensive succession plan, you will have detailed action plans for succession events that are relevant for your business.
Communicate the plan with others
Keep communication lines open to allay any internal concerns or uncertainty.
Follow the actions outlined in your succession plan
Remember – these are tried and tested. Trust the plan and follow the actions you decided upon in your planning.
There will be parts of the plan that cannot be managed in-house as there may be legal or financial implications of the succession event that is occurring. An accountant or specialised succession planning advisor can assist.
If you haven’t got around to preparing your succession plan yet, we’ve put together 6 steps to getting it done for your business. Or give us a call, we can help.
Getting a succession plan in place is only part of the equation. If you need help with implementation, please contact our experienced business advisors on 1300 888 803.
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