Looking to grow your company? It’s time to get serious about your succession plan.
11/13/2018 12:00
Change is inevitable, especially in business. Maybe a key company leader leaves for greener pastures or your partner is forced to retire early due to health issues. Whatever the scenario, businesses evolve and leadership changes.
Have you planned for what that will look like in your company?
A recent U.S. Trust survey found that while two-thirds of business owners say they have a succession plan in place, only one-third have what they would describe as a “robust, documented plan that’s been communicated to those it affects.”
A vague idea you’ve been noodling on won’t hold things together if you unexpectedly pass away, nor will it protect your children who have invested years into your business and are banking on ownership interest when you step down, Collector magazine editor Anne Rosso May reports in the November issue.
“Trying to get out of a business without having first crafted a plan will usually result in less options for exiting, lower net benefit from the transition and, many times, failure of the transition,” said Renee’ Caputi, founder and CEO of the consulting firm Enhanced Solutions Advisors LLC. “You wouldn’t dream of heading on a cross-country road trip without a map and a route to follow, yet everyday business owners head into a business exit with no plan of any kind.”
A formal succession plan can help protect your family, your employees and future owners to ensure your business chugs along even if today’s key leaders aren’t steering the ship. Here are four tips you can use to make sure your plan is solid.
Be Proactive, Not Reactive
The best time to draft a succession plan is today—not the day catastrophe strikes or surprise announcements are made. Caputi recommends business owners start working on an exit plan at least three to five years before they hope to leave.
Your succession plan meetings will cover a wide range of situations and what-ifs. For instance, if one of your business partners fell into a coma, how would you handle that person’s ownership interest? How long would the incapacitated partner remain on the payroll?
Identify your goals for the future of the business. Do you want to keep it in the family? Sell it to an employee? Merge with a bigger company? Valuation plays a big role in this, as do the tax implications of a sale or transfer of ownership.
Get it in Writing
Rodney Meeks was studying fire science in college when his dad, Jeff, made him an offer: “If you change your major to business, get some collection industry experience and then come work for me, the company can be yours someday.” Meeks agreed, and started at Credit Consulting Services as a collector before gradually climbing the management ladder.
“It was supposed to be a 10-year plan, and the next thing I knew 20 years had gone by and nothing was happening,” Meeks said. “Suddenly I’m watching my dad’s health deteriorate and I’m looking at our aging management staff and thinking, ‘I don’t have anything in writing. I could really be in trouble here.’ I was afraid I’d put all these years into the business, and what was promised wasn’t going to happen.”
Meeks finally had a heart-to-heart with his father, who wrote the transition into his estate plan, giving Meeks 35 percent of the business initially and 100 percent when he passed away.
It’s also important to be transparent when developing a succession plan, Rosso May reports.
Your succession plan should identify employees to be transitioned to a new position, maintained in their current position, trained in preparation for a future position or immediately promoted.
Worried this all sounds so final? Don’t be. These plans can—and should—evolve with your business. And don’t assume every manager necessarily wants a promotion. You might try asking employees about their aspirations before considering them for a future role.
Read more tips for developing a succession plan in the November issue of Collector magazine.
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