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Successful Business Succession Management Means Doing These Things

Dec 7, 2022 | Estate Planning Legal Blogs | Elder Law P.A

Business succession management planning is a strategy that many companies employ to transfer the role of leadership to another employee or a group of employees. Succession planning is a proactive endeavor utilized by businesses to streamline the process of selecting new ownership for a business. It means recognizing employees’ talents within the company that may merit career training and advancement to be able to assume a leadership role in the company. The end goal of business succession planning is to ensure that the business continues to run smoothly without any interruption when the previous owners leave the company. In addition, it’s a great way to ensure that the company is fully prepared to advance and promote employees and, at the same time, be prepared for anything unanticipated that may occur in the future.

UNDERSTANDING SUCCESSION PLANNING

The first thing to understand is that business succession management planning is not a one-time event created in a single day. It is a contingency plan that needs to be updated and re-evaluated every year or as changes dictate within the company. Hence, the planning assesses the potential leader’s knowledge and skills and helps identify potential successors within and outside the company. If an internal employee or employees are selected, the process ensures that they are provided with the right skills to assume control.

In most large businesses, it is the board of directors who oversees the succession management planning as it affects the shareholders as well as employees and the owner. In such scenarios, it is not unusual for large businesses to train mid-level employees for high-level leadership positions. For family and small businesses, succession planning often means training one or more family members to take over the business.

THE PREPARATION

Succession management planning, when done correctly, can be very time-consuming and require a lot of effort. First and foremost, creating a business succession plan has more to do with preparation than pre-selecting the candidate. The individual responsible must have the skills, knowledge, and practice to become a potential successor. While this may seem like a complex and onerous process, it can be made simpler if one is organized and plans ahead of time. In most cases, it requires the following:

  1. Select the best successor. One of the tasks of business succession management planning is to identify and select the best candidate(s) for the job. You should be looking for an experienced individual who is willing to learn the skills necessary and have the proper communication skills needed to run a company. During interviews, many candidates appear great, but, in reality, only a few may have the desired traits and qualities to become a successor.
  2. Plan time for training. No matter whom you select as the successor, the individual will require some training and development of skills, certification, and company knowledge. The individual may have to cross-train and shadow other experts to learn more about the job. The training should give the potential successor an overview of the company and enable him/her to understand the business at the ground level. More importantly, the cross-training will help identify candidates who are not up to the task of developing multiple skills or do not have the right attitude to become a leader in a business.
  3. Create more than one succession plan. Ideally, it is recommended that one creates several business succession management plans: one to deal with any emergency situations that may arise and a long-term succession plan that anticipates changes in the leadership.

THINGS TO CONSIDER

One of the ways to ease into a succession management plan when there are multiple or joint owners is for each owner to purchase a life insurance policy that names the other partner as the beneficiary. Known as a cross-purchase agreement, this type of succession plan permits the surviving partner to resume operating the business as usual without delay.

For example, if one partner dies unexpectedly, the surviving partner may not have enough cash to buy the deceased partner’s share of ownership. The life insurance proceeds, therefore, can make that purchase possible.

WHAT ARE THE BENEFITS OF SUCCESSION PLANNING?

Once a formalized succession plan has been created, it has benefits for both employees and employers, and they include the following:

  1. All employees appreciate that they also have a chance of advancement and becoming potential owners in the future, which leads to higher job satisfaction and more productivity.
  2. When an employee knows the company will have future leadership opportunities, it helps reinforce the bond and dedication to work and to the business.
  3. Business succession management planning encourages management to start mentoring employees and transferring the essential knowledge and skills needed to run a business. This helps create a pool of potential employees from which to select a potential successor.
  4. Management can determine employees of value and ensure they are retained for selection of a leadership position.
  5. Both employees and upper-level management are able to share the company’s vision and values.
  6. Succession planning ensures that there is no mass exodus of workers, and with the training provided, there will always be a new generation of potential leaders available.
  7. A viable business succession plan also benefits shareholders because their investments (stocks) continue to grow.

SUCCESSION PLANNING AND DIVERSITY

Today, it is important for businesses to be diverse in management and upper-level employment. The more diverse a business is, the higher the chance of success. Many businesses are beginning to recognize the need to diversify their work environment in order to be successful and remain competitive. Diversity not only broadens the talent pool but also improves employee morale. Today, businesses are hiring people from different backgrounds and experiences to run companies and be leaders.

COMMON MISTAKES MADE DURING SUCCESSION BUSINESS PLANNING

Succession management planning requires paying attention to details and being organized. Some of the common mistakes made may include:

  • Being unable to communicate the company‚Äôs vision to the employees or shareholders
  • Rushing to create a business succession plan at the last minute
  • Only selecting one candidate as a potential successor
  • Not thoroughly vetting the selected individuals
  • Ignoring the need to diversify the talent pool
  • Not getting the business valued
  • Making too many positive assumptions about the candidates
  • Not working with an accountant, lawyer, or a tax professional
  • Not starting a succession plan early enough

FINAL POINT

When done in the right manner, business succession management planning is an excellent tool for recruiting talented successors and enhancing the company culture. Other than having a diversified workforce, it allows for a smooth transition of a business to the new successor. However, for the benefits to occur, you will need to communicate with everyone concerned about your plans. As long as employees, shareholders, and board members understand what you are doing, there is no reason why you cannot have your legacy passed on smoothly. One of the best pieces of advice is to talk to a knowledgeable attorney about succession management planning. At Elder Law, P.A. we have a great deal of experience with succession planning. Call us today at (561) 933-4681 for a free consultation.

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