One of the top questions I ask business owners is, “Do you have a succession plan or exit strategy for your business?” I also ask employees, “Do you know if there is a succession plan or an exit strategy in your company or organization?” It may surprise you to learn that in my experience, over 90% tell me they don’t have a succession plan or exit strategy. A 2004 CIBC Small Business Outlook Survey (conducted by Decima Research), indicated that 39% of small business owners plan to sell their business and 15% plan to have a family member take over. However, two thirds (67%) of the entrepreneurs surveyed stated that they had not yet addressed the issue of who will take over the company. For me, that result is very revealing and, frankly, it is a motivation to write this article.
Succession planning is a critical factor in the long-term success of any business. Leadership transitions in business affect the continuity of the entire organization, employee retention, customer retention, and return on investment. It is essential to create and implement a process that creates visibility, accountability and greater integration of all facets of the business.
In another article, Your Strategic Thinking Business Coach provided seven (7) strategic actions to strategically structure a succession planning process. Those seven (7) strategic actions are:
Strategic Action #1: Start the succession planning process early.
Strategic Action #2: Determine and clearly communicate the purpose, goals, and scope of the leadership succession plan or program.
Strategic Action #3: Clearly define the desired and required qualities of the new leader.
Strategic Action #4: Develop a clearly focused leadership development strategy.
Strategic Action #5: Develop a talent management process that will incorporate strategic thinking for specific development opportunities for future leaders.
Strategic Action #6: Identify future leadership candidates by developing a system to assess current and future leadership needs.
Strategic Action #7: Identify a system for communicating information to ensure succession and/or leadership development programs are aligned with strategic business needs.
After developing the list of strategic actions, it was important to develop an overview to present the strategically structured elements of succession planning. That scheme is as follows:
OUTLINE OF THE STRATEGICALLY STRUCTURED SUCCESSION PLAN
I. GOALS AND OBJECTIVES
Develop a vision statement for your business
Develop a mission statement for your business
Develop a list of your core values and guiding principles
Develop short and long term goals for your business
Identify the stakeholders of your business
Develop your personal vision
Develop your personal goals
Develop your retirement goals
Build a team of advisors for your estate planning effort
Establish the need for a succession plan.
II. ESCAPE STRATEGY
Develop options for your exit from your business
Review the options developed for your exit from the business
Select your option for your exit strategy
third BUSINESS VALUATION
Get professional advice to determine the value of your business
Determine the value of your business
Determine a present value of your business assets and liabilities
Determine the goodwill value of your business
IV. BUSINESS STRUCTURE
Identify and quantify your company’s debt
Recruit and retain productive employees
Business structure to maximize value
Document the key processes and procedures used in your business
V. TAX CONSIDERATIONS
Develop financial goals
Identify the tax implications of your current business
Plan and implement a tax strategy to minimize your taxes
SAW. LEGAL CONSIDERATIONS
Hire a professional attorney
Develop a purchase-sale agreement for your business
VII. ESTATE PLANS
Hire a Professional Estate Planning Advisor
Develop an estate plan
VII. SELECTION OF THE SUCCESSOR
Develop specific criteria for your successor
Recruit and select successor based on your criteria
Communicate the successor selection to your stakeholders
IX. TRAINING OF SUCCESSORS
Develop a list of characteristics and skills your successor needs
Develop a training plan for your successor
Develop a coaching/mentoring plan for your successor
Set a timeline for your estate plan
X. CONTINGENCY PLAN
Develop a contingency plan (based on “What if?”)
Research and identify insurance needs (disability, personal life, critical illness, business, key person, etc.)
Select and train a key employee to take over in the event of an emergency or unforeseen event
Communicate your plan to stakeholders and advisors
XI. PLAN IMPLEMENTATION
Document roles, responsibilities and expectations regarding the transition of ownership
Identify a facilitator to ensure that the succession process takes place
XII. DEADLINES
Identify your timeline for management transition
Identify your timeline for the transition of ownership of your business
Identify your timeline for your complete exit from your business
XIII. COMMUNICATION
Document the succession plan.
Document how to proceed with the succession plan in the event of an unforeseen event (accident, illness, death)
Document transition or exit strategy to inform family, employees, customers, vendors, community, and all stakeholders