Your small business is up and running with a bright future. You’ve decided to go full force with it and make long-term plans. But you know as well as any other small business owner that things don’t always go as anticipated. Wise entrepreneurs know that a well-developed succession plan can ease the future changes of an evolving business.
What is a Succession Plan?
A succession plan is a written plan for the future of the business. Specifically, it outlines who and how one leader will replace another within the company. Positions of leadership are often filled internally with people who have the potential to improve upon their current position and assume a leadership role.
While it may seem too far out to worry about right now, how you exit your business in the future reveals the character and effectiveness of your business as a whole. Even if you plan to work until the day you die and hand your business down the family line, you’ll still want a plan in place to make the transitions go as smoothly as possible. It’s especially important to have a succession plan in place in the event of a tragedy or unexpected death. What if you had a heart attack tomorrow? What would the future of your business look like?
How to Create a Succession Plan for Your Small Business
- Assess internal candidates first. A strong succession planning program identifies future leaders within the company and prepares them through mentoring, training, and assignments that stretch them. A study from Booz Allen Hamilton concluded that “over their entire tenures, CEOs appointed from the inside tend to outperform outsiders” when it comes to returns to shareholders.
- Develop a written criteria for your ideal candidate. Which characteristics are the “must haves” and which are the “nice to haves”? Try to view your internal candidates as objectively as possible as you run through your written criteria. Obviously your replacement should have strong leadership and organizational skills, but what else? Dig deep as you develop your list.
- Consider all stakeholders. As you are creating a succession plan for your small business, consider how a change in the leadership will affect the other employees that work for you, as well as your business partner if you have one. Ponder these questions as you create your succession plan:
- Is there an emergency candidate who could take the reigns if you were to leave tomorrow?
- Is the company organized enough to ease the transition of a new leader?
- Is there a seasoned leader in place who is willing to coach a potential successor?
- Put your succession plan into practice now. Most business owners make it this far and then stop. Your succession plan should be more than a static list of names in your file cabinet. Start preparing your successors now for the future. There is no such thing as a “ready now” candidate; all will need mentoring and training to assume a leadership role. Assign your potential successors tasks that will stretch them, challenge them, and give them responsibility to make important decisions within the company.
- Refresh as needed. Your succession plan should be a living document that is changed and modified as market conditions and/or strategy change. It should go beyond the traditional position description and delve deeply into both the competencies and experiences required for the next leader. The succession plan can then be used as a tool in grading succession candidates objectively.
When in doubt, consult a professional. An accountant or attorney can provide a fresh, objective viewpoint and can advise you on the potential profitability of certain candidates. You can even screen candidates formally with stress tests, aptitude tests, and specific challenges. Creating a solid succession plan now can help ease the transition of changing roles later on.