Strategic Planning: Succession Planning
After you’ve determined how you can exit your business, succession planning helps you determine who runs your business after its transfer. (This phase is relevant for all exit strategies except liquidation.) While you still have ownership and control, adding your input is crucial. No one knows the business better than you, so take advantage of your current situation and aid a successful succession.
To make sure the succession goes smoothly, update or establish your strategic plan so it can be used as the guide for the person who takes over. This guide helps maintain financial stability and future growth of the company.
You want your successor to flourish because, undoubtedly, your financial future is intertwined with your business’s future success. Therefore, take adequate time to develop a complete strategic plan so your successors have a steering wheel to guide the business safely through the competitive marketplace.
As the owner, you probably have grand ideas and big plans. But remember not to overwhelm your staff by thinking too big or grandiose. Recognize your constraints and create a realistic strategic plan.
Follow these steps to develop a succession plan:
Write a job description for your successor(s).
You know the requirements of the position you’ll be vacating better than anyone. Make a detailed list of everything you do and then ask your direct reports to comment and add to it.
Develop a training program for your successor(s).
You know the needed skills and knowledge to be competent in your current position. Consider having your successor shadow you in your job, making an assistant CEO/leadership position, or creating a management training program. All these options, or a combination of them, achieve the goal of giving your successor the tools he needs to do your job.
Formalize and communicate the plan to all interested parties.
No matter who you appoint to take over or whoever your successor is, someone’s feeling may get hurt, and you may end up with disgruntled family members or employees. If you communicate your plan with detailed explanations, people may better understand why you made the decisions that you did. Time can resolve sensitive issues. Make sure to also create all necessary legal documents to protect your business decisions.
Create a management letter for your spouse (or significant other).
In the event of an untimely transfer, your spouse (if you have one) needs to know how you want to handle the situation, what your current goals are, who can be trusted and relied on in the current management team, and who can compose a dependable board of advisors. Write a statement including all these factors.
If you don’t have a spouse, you should still craft a management letter because you need to explain how you want to transfer your business.
In either situation, provide a copy of your management letter to your spouse or most trusted confidant as well as your corporate attorney. Consider putting this letter in a safe deposit box as well. The most important point of this letter is to ensure that your intentions are upheld in case you aren’t there to oversee the transfer.