Most entrepreneurs envision working forever. The thought of giving up control and putting yourself second in the queue is challenging. But passing the baton to future leaders is a critical part of business success.
In Brief: The Importance of Succession Planning
- Succession is ultimately a financial transaction that deserves thoughtful preparation.
- Mapping out your succession timeline is an opportunity to shape your legacy and role after you pass the baton.
- Succession roadmaps are living, breathing documents that double as insurance policies for smooth business transitions in case the unexpected happens.
- CornerCap recommends crafting your succession strategy as part of your personal financial plan, with input from your advisors, legal team and tax experts.
Ideally, succession happens when the founder is ready to retire. However, unexpected events could also accelerate this transition. That’s why every business owner should begin succession planning from day one. In fact, some of the most forward-thinking entrepreneurs include succession planning into their initial business plans.
Succession planning is a process that takes time and multiple iterations. Just because you start working on it now doesn’t mean that you’ll give up control of your company tomorrow. Rather, you’re forging a path toward the next destination on your entrepreneurial journey. Should the unexpected happen, a succession plan can help buffer disruption to the business, with key players already identified and a guidebook for new leadership in place.
Kickstart Succession Planning
Between day-to-day responsibilities and the emotional aspect of succession planning, most owners don’t know where to start or simply prefer to avoid the topic altogether. But the more you put it off, the likelier your heirs will inherit the task and founders will miss out on the opportunity to shape their company’s future.
These are a few ways to kickstart succession planning that we’ve recommended to CornerCap clients:
- Identify and assemble your succession planning team. It could include current employees, trusted advisors, or outside experts. You may even need to hire someone into the business to fill a role where there is a leadership gap.
- Start with a timeline. Create a succession plan timeline by identifying your most important goals, realistic deadlines to accomplish them and building out from there.
- Establish accountability – for yourself. It’s important to have a support system that keeps you going when plans change while respecting the emotional component of this process.
Protect Your Financials
Calculating the value of your business is the first step to a successful transition. In some cases, there may be an overlap between your personal finances and business accounting. An outside business valuation allows you to get the books in order and prepare your financial statements before you sell or hand over the company.
With the help of your advisors, legal team, and tax experts, you can make the succession strategy part of your personal financial plan. Focusing on the finances can also help manage any business debt that you may have and minimize tax liabilities. Your financial advisors can also set up a structure for you to receive passive income after leaving the firm.
What Succession Can Look Like
The most common ways to transfer business ownership include:
- Selling your shares to a co-owner or business partner.
- Passing the business down to your heirs.
- Selling the company to a key employee.
- Selling the business to investors or to another company.
By identifying your preferred succession method ahead of time, you can create a leadership pipeline best suited to the company’s success. This process is also key to maximizing exit value, maintaining continuity of your plans and enhancing company culture. Most importantly, it gets all parties involved on the same page, allowing your successor to prepare.
Your Succession Roadmap
Once a designated successor is in place, it’s all about setting up the business for a smooth transition. That means providing your succession team with everything they need to accept the baton you’re passing them. Even if your successor already has some of the skills and knowledge to take over the business, charting a roadmap is essential:
- Train Your Successor. This includes professional development, mentorship, and job shadowing opportunities for your successor, as well as other key employees.
- Implement Standard Operating Procedures. With defined systems in place, you can properly handover of institutional knowledge and at the pace you decide.
- Establish Your Timeline. This is your opportunity to set up your key dates for the transition and whether you’d like to retain a consultant role after stepping down from your position.
- Prioritize Communication. By effectively managing your team’s expectations, you empower them to focus on other business goals to support the succession plan. As succession approaches, many founders also choose to prepare customers for the upcoming transition.
- Take Advantage of Technology. Talk to your business advisors about software available to assist with the transition of ownership and whether you should take steps to integrate these tools into your tech stack. This tech investment can help the company plan for the long-term and centralize all necessary data for new leadership to take over.
While this roadmap may stir uncomfortable feelings, remember that it’s a gradual process. The more time you take to prepare and plan every step of the process, the more you can lead the way to continued success for your business.
Revisit Your Succession Plan
Just like your personal financial plan, your succession strategy is a living breathing blueprint. As the business evolves and adapts to external changes, revisiting your succession plan can help you stay on track. Once you have a plan in place, we suggest getting together with key players to review and reevaluate it annually.
Your Legacy on Your Terms
Much like contributing to your IRA or creating a will, succession planning is a way to define your legacy. It allows you to develop an exit strategy for your own successful retirement and the continued profitability of the business once you step down.
If you’re ready to figure out how your succession plan aligns with your personal financial plan, , reach out to me, and we can get the process started together. Whether you’re an early-stage business or a mature company, our experienced team is ready to assist you in the process and plan ahead for your future success.