One of the wisest actions you can take to ensure a strong future for your business and maximize its value for a potential sale is to develop a succession plan. It’s likely that you will experience employee turnover at some point—whether due to a job change, a move, physical incapacitation, or retirement. A succession plan will help ensure business continuity in the face of such changes, and also makes your business more attractive to buyers.
Succession planning involves identifying key positions in your business and developing a plan to train candidates for those positions. It helps you decide who will help carry on your business in the event of a major employee change. A succession plan is vital for business continuity and smooth leadership transition in the face of major upheavals to your company's leadership, and it's equally crucial when preparing for a sale.
Even if you do not anticipate your leaders leaving in the near future, it is wise to plan ahead in case someone unexpectedly leaves or if you decide to sell.
How does a succession plan protect my business and enhance its sale potential?
A succession plan is a concrete strategy to identify people who can replace key leaders in your business if needed and prepare them to step into those leadership roles. Having a plan in place will protect you by preventing disruptions to your business continuity. It will also help foster a sense of stability across your business for employees as well as your clients, and it signals to potential buyers that the business is well-managed and sustainable.
Saves time and money and increases buy confidence
If you don’t have a succession plan in place, and a key leader in your business leaves, you will likely lose valuable time and productivity. You will have to quickly try to bring an existing employee up to speed, and then spend time and resources monitoring that employee’s performance in the new role. If you don’t have someone internally who can step into the void, you will have to spend time and money attempting to hire a new employee, which could take months and could ultimately prove unsuccessful. After bringing in a new hire, you would need to spend valuable time training, preparing and monitoring that new person. Thus, you are better off spending time cultivating future leadership from within your business. Buyers are also more confident when they see a strong team in place, reducing their perceived risk and potentially increasing the sale price.
Protects knowledge and enhances business value
Aside from business continuity, a succession plan will help you prevent valuable corporate knowledge from leaving your business with employees who depart or retire. By having a specific succession plan in place, existing leaders can pass on their knowledge and expertise to potential successors, keeping key corporate knowledge within your business. This knowledge transfer is also crucial for a smooth transition after a sale, and it makes the business more valuable to buyers who want to ensure continued success.
Boosts employee retention and attracts buyers
Having a path to future leadership will help inspire and retain your current employees. They will be more likely to perform at optimal levels if future leadership opportunities are on the horizon. By investing in their growth potential, you are cultivating ownership in and loyalty to your company. This will help increase your employee retention, preventing loss of good talent to competitors. A stable and motivated workforce is a major selling point for potential buyers. They want to know that the business has a strong foundation and a team that is committed to its success.
Steps to develop a succession plan
Ideally, you should develop a strategy that is as detailed as possible. Take methodical steps to develop your succession plan—identifying, preparing and retaining employees in your business who will be the next generation of leaders. Buyers are looking for a business that can thrive independently of its current owner. A robust succession plan provides this assurance, making your business a more attractive and valuable acquisition.
You can develop your plan internally with help from your company leaders, perhaps utilizing widely available online tools or even hiring a consultant to help with the succession planning process. To create a successful plan, there are four main steps you should take.
1. Pinpoint positions
First, you need to determine which positions in your company are critical to doing business and most in need of a succession plan. Examine all roles to identify which are so entrenched in your business that it would be difficult and extremely time-consuming to train successors for those positions. Ask which positions are easily replaced, for which successors could be quickly brought up to speed. This will help you identify the positions that are most important for business continuity and that, if suddenly left vacant, would cause severe disruptions.
2. Establish criteria
Second, you need to establish what criteria the potential successors need to meet to successfully fulfill the roles. What knowledge, skills, qualifications and experience would a successor require to step into the position? Establish benchmarks for each crucial role in your company. This information will be the basis for determining which employees would make good candidates for the roles and for developing their training plans.
3. Identify candidates
Third, use the criteria to identify potential successors. Take stock of who in your business could be trained for these positions. Observe and ask around about who would make good leaders. Assess their skills, knowledge and performance records to determine if they can handle more advanced leadership roles. Talk with these employees about what their future goals are. Ask if they want to take on more leadership in the future, and if they are motivated and willing to put in the work it takes to move up in the company.
4. Develop your plan
Fourth, establish a comprehensive plan to prepare and train your candidates. Look at the criteria for the positions and compare that with the candidates’ existing skills and experience. Determine how much training they will need and establish a method to transfer corporate knowledge from current leaders to candidates. Establish mentorships between current leaders and future leaders. Ensure that your plan will adequately prepare your future leaders for their roles so they will feel confident when they step into them. Conduct trial runs with successors stepping into roles temporarily to make sure they are well prepared. Be sure to establish timelines and benchmarks, and make sure the plan is effectively communicated to all parties involved.
Continue to plan ahead
Once you’ve established your plan, you will need to continually monitor and re-evaluate it. Are your successors continuing to live up to expectations? Are they still interested in pursuing leadership positions? How is the training and corporate knowledge transfer proceeding? Continue to evaluate the best processes for these steps and update as needed.
By weaving succession planning into your overall business strategy, you not only protect your company’s future but also significantly enhance its appeal to potential buyers when the time comes to sell.
