For many small businesses, the CEO and Founder are the cornerstones. Without them, the entire operation falls apart. What’s interesting is that this applies to more than just small businesses. Even large companies could fall in disarray if succession planning isn’t done well. To help you avoid some of the mistakes some business leaders have made over the years, we’ve put together a few thoughts on the topic.
What is Business Succession Planning?
Just like it sounds, succession planning is getting the company ready for a leader’s transition out. This applies to large and small companies, as the leader generally plays a vital role in keeping the business moving in the right direction.
Your goal should be to make the transition while preserving the company’s value and ensuring it is ready for continued growth and success.
There are a few main pieces to succession planning that should be incorporated.
Identify Potential Successors
The first step is identifying the best person to fill your shoes when you leave. Sometimes this is obvious, but it’s not always easy.
For example, does it make sense for you to pass the baton to someone already in the company? The advantage here is that the internal candidate is already very knowledgeable about the business. They should also be well-liked and someone the business would be willing to follow.
On the other hand, sometimes a company needs a new direction. Of course, bringing in a new CEO from the outside has its challenges. Still, they can breathe new life into the organization, which may be what the company needs.
Developing a Business Transfer Plan
Another critical component is developing the business transfer plan. This lays out the overall strategy in a document that can be referenced by both the successor and other leadership within the organization. It will include things like responsibilities, legal considerations, and training.
Passing on a business isn’t insignificant and doesn’t happen overnight. Creating this document will help you think through different parts of the company that your successor will need to handle once they come in.
Legal and Financial Considerations
Passing on a business isn’t something where you hand over the keys and say, “good luck!” Instead, you need to take action on legal and financial tasks to ensure everything is in place before you head out the door.
Here are a few examples of things to take care of.
Pass on legal ownership of the company to the successor – assuming it’s not a publicly traded company.
Ensure key stakeholders, such as the board of directors, agree with the plan.
Ensure financial paperwork is completed, such as bank account paperwork.
If the successor is buying the business, a licensed business attorney needs to handle the financing paperwork.
What Happens if You Don’t Have a Good Succession Plan?
Lastly, let’s talk about what may happen if you plan poorly.
The short answer is that your company will suffer. The business you’ve spent years building up through blood, sweat, tears, and sleepless nights will struggle.
For example, if you don’t bring in the right successor, they may make poor decisions that drive the company into the ground.
Or even if you bring in the right successor, they may be set up to fail if the transition plan isn’t laid out well.
If you want to have a third party take a look at your business succession plan, give us a call or send us an email. We’d be happy to work with you to lay out a plan to help ensure your company continues to do well and grow even after you step away.