It takes a lot of skill and hard work to be a successful business owner. Many successful entrepreneurs are adept at short-term problem solving, but very few have a concrete succession plan. Although every business owner will eventually encounter transition, most are unprepared for this stage in the business lifecycle. This typical lack of preparation is a driving reason why many family-owned businesses don’t survive into the second generation, and only a fraction of those businesses continue for future generations. Developing a strong business continuity plan is critical to the success of a business after your retirement.
Succession Planning Explained
A succession plan is a comprehensive strategy that tackles the transfer phase when the leader of a company steps down, either into retirement or onto the next venture. This includes determining and negotiating a successor, implementing a personal retirement plan, anticipating family struggles, and taking care of employee needs. A good succession plan will also save you and your successors money, as it will aim to minimize taxes and leave you in the ideal financial position.
Every business goes through the transfer phase with varying degrees of success. Unprepared businesses are more prone to internal struggle, family conflict, and even complete organizational collapse. Prepared businesses, however, can gracefully move through this phase with minimal hardship, as they have anticipated the transfer and considered each aspect. Therefore, it is worth your time to prepare your business for this phase.
Succession Planning Strategy
Identifying a Successor
A good place to start is determining your successor. If you don’t already have a successor in mind, there are three main pools to choose from:
- Current employees
- Family members
- Third-party candidates
Choosing from your current employees is a good option because you can hand the company over to someone who is already familiar with the internal structure and culture. You have experience working with this person, so you know that they possess character and are committed to the company. Passing the company on to a family member can also be a good choice, so long as they are prepared for the responsibility. It can become complicated if multiple family members are interested in the position, as you might need to find a way to placate those who were not selected. As a final option, you might consider bringing in an outside candidate to take over the company.
Finding a successor within your company is easier when you trust your employees. An Employee Mentorship Program is a great way to improve your business from the inside, and can help you become more confident that your business is in good hands when you retire.
Taking Care of Employees
Regardless of who ends up at the head of your company, you should make taking care of your current employees a priority. Make sure that employees are prepared by giving them benefits, such as health insurance and retention bonuses through the transition phase. Rewarding your employees sets a good example for your successor. It also encourages your employees to remain loyal to your company through changes. Once your employees are taken care of, it’s time to think about you. Put your retirement strategies into action and review your estate plans. If you have plans to make charitable contributions, now is a good time to make sure those are set.
The Final Thought and Next Steps
Finally, consider the legacy you wish to leave when exiting the business you’ve built. When creating a succession plan, ask yourself: what do you want future employees and clients to associate with your business, do you want the business to remain true to its original mission, and what preparations need to be made to ensure your desired legacy?
Preparing your business to continue in your absence is an emotionally difficult process, but it doesn’t need to be logistically difficult. When you give yourself enough time to tackle the process, you set yourself up for success in the end. A well-executed plan allows for a satisfying conclusion to your time at your company and, with your blessing, opens it up to the next stage in its development.
If you are looking for support with business succession planning and need some guidance on where to start, your bank should be one of your first calls. Main Street Bank offers exclusive consultations on business succession planning with an all-inclusive 5-Part Business Continuity Checklist. We are here to help you prepare for the next stage in your business development. Contact us if you are interested in taking advantage of this free service and we will schedule a time to meet with a local business banker to review this process.
5-Part Business Continuity Planning Checklist
Get access to Main Street Bank’s Business Continuity Checklist and more resources. Fill out the form to hear from a business development expert.
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