Getting down to business with succession planning
Canada Life - Aug 17, 2023
When you plan for the future, you take careful consideration to ensure your loved ones are taken care of and your finances are in order
You may decide to buy life insurance to help your family and you should make a will to make sure your assets and possessions transfer smoothly. It’s important that you take the same care and consideration for your business’s future by creating a succession plan.
What is a business succession plan?
A succession plan is a strategy to help identify and prepare future leaders in your company. It can help determine who will move into key positions as they become vacant and what training they may need to prepare for those roles. Ownership and/or leadership changes can be challenging. A succession plan helps ensure a seamless transition and can keep your business running smoothly.
Creating a succession plan can be overwhelming. Many Canadian business owners don’t start making succession plans until they’re nearing retirement. But, by creating your succession plan now – before you need it – you’ll be able to identify potential successors and prepare them for their future roles.
A succession plan can also help maintain harmony in family businesses during times of owner transition because they provide clear direction. 70% of businesses don’t survive the transition from founder to second generation. “In most cases, the ‘killer’ is taxes or family discord. A family business succession plan can address two of the most common reasons for a failed transition – taxes or family discord.1
Why it’s important to have a succession plan for business
Succession planning is essential for all business owners (even if retirement is not in your near future). The long-term success and operational functionality of your business largely depends on a strategic succession plan. Succession planning can also help you:
- Protect the legacy of your business
- Build value for your business
- Provide financial security for your family and stakeholders
- Deal with unexpected events (illness, accident or death)
- Facilitate a seamless transition
- Identify successors and develop internal talent
- More easily fill leadership and key positions as they become vacant
- Maintain harmony for family businesses during transition
How do I create a succession plan?
To create a succession plan, you’ll need some help from your accountant, lawyer, banker and advisors. These professionals will help you cover all elements of a plan, including the business’s transfer from one owner to another.
In addition to collaborating with the right professionals, you may also want to contact friends or colleagues who have been through the process – this could be someone who sold their company, made a generational ownership change in a family business or retired from their business. You can ask them what worked well versus what didn’t and incorporate their feedback into your plan.
Tips to help create an efficient succession plan:
- Be proactive – you want to have the plan in place before you need it. You won’t always know when an essential employee is leaving, but you can be prepared with a plan. Do this by identifying key leaders/members of your team and determine what the impact of that person’s departure would be.
- Identify successors – consider the employees who could temporarily (or permanently) fill the roles of key leaders. Would they need training to move into this role?
- Talk to the successors – as part of your planning, talk to the employees you’ve identified as potential successors. They may not be interested in management positions or training. It’s good to know about their preferences before you develop your plan. Make sure you understand how these employees envision their future before you consider them for different roles. Also, make sure they understand this is simply planning – you’re not promising or guaranteeing anything.
- Invest in the successors – invest in professional development for the individuals you’ve identified as possible successors. Also, you may want to consider rotating them through different jobs in your organization so they can gain experience across the business. Helping ensure the readiness of identified successors is key in developing a successful succession plan.
- Test your plan – have potential successors take on some of their possible responsibilities. For example, if a leader is out of the office, have one of your successor candidates take on some of their responsibilities. It will give you a chance to see how they perform and identify any areas that may need further development.
- Who will replace you? Now that you’ve consider who will succeed key members of your team, it’s important to think about who your successor will be. This is your chance to look at your employees – can you see any of them taking your position one day? Is there anything you can do to develop, groom and coach that person now to better prepare them for the future?
Starting your succession plan today will help prepare your business for tomorrow. And you don’t have to do it alone.
Contact me, and we can discuss your retirement planning and how to start the succession planning process.