For many small and medium-sized business owners, managing their business and ensuring a positive cash flow is a task that can consume the majority of their time. As busy as they are, succession planning might not be an active priority—but it should be.
Planning for the future involves planning for a time when you will step away from your business, to ensure its continued success and growth. At Central Financial Group in Iowa, we’re dedicated to delivering quality strategies to help you protect yourself and what’s most important to you. Keep reading to learn more about business succession planning and how you can create a comprehensive succession plan for your business.
Why Create a Business Succession Plan?
There are some common misconceptions that business owners have about succession planning—that it’s a one-time process, that it can wait while you focus on other issues, or that it’s only for critical positions. Succession planning is time consuming, but it is an essential part of successful business management. It doesn’t just help pass the torch, but also protects the business from roadblocks and ensures continued operation.
The most effective succession plans start early with a wide scope. Being a leader is about always being prepared for the next step, and while you might have a date in mind for succession, it’s important to be prepared in the event of something unexpected.
Common Types of Succession Plans
Succession planning can be divided into two broad types, with both being necessary for the long-term success of your business.
1. Leadership Succession Plan
Leadership succession plans focus on creating a strategy for when key leaders resign. It is a future-focused plan that involves analyzing potential talent and developing a new generation of leaders.
C-suite positions require careful succession planning—which includes reviewing talent, monitoring potential, training, goal alignment, and more.
2. Non-Leadership Succession Plan
A well-executed succession plan takes into account the responsibilities of key personnel within the company as well. Employees in critical roles that are hard to replace, for example, require succession planning too.
It’s important for leaders to understand what drives their business ecosystem, and prepare accordingly. A sustainable vision requires more than the succession of key players, and the right succession plan will focus on building trust and streamlining operations to improve growth.
5 Steps to Create a Business Succession Plan
Succession planning isn’t a one-size-fits-all approach. Every business has its own factors, priorities, and goals which means a unique strategy is necessary. However, there are five steps you can take to help you create your business succession plan.
1. Identify Key Positions
Every organization has key areas and positions that are critical for the continued operation of the business. In the event that these positions become vacant, it’s crucial that you have a plan that won’t just allow you to seamlessly fill the position, but also run your business smoothly until those vacancies are filled.
In general, a five-year timeline is good when it comes to succession planning, but the earlier you start, the better. Focus on analyzing the most critical positions for business growth, and make sure you’re prepared to protect those positions.
2. Identify Potential Successors
Once you’ve determined the key positions that drive company growth, you can establish your selection criteria. Knowing what is required for those key positions will help you establish expectations and focus on building employee development efforts.
There are three main competencies to take note of when looking for successors—their current knowledge and skills, whether they fit your leadership profile for the position, and potential for growth.
3. Assess Capabilities
At this point, you can start building a timeline for when the successor to the role will be ready for it. This timeline depends on their readiness, potential, and capabilities. Before you begin, it’s important to identify the vulnerabilities they currently have, and a time frame to develop their skills and competencies.
Depending on this time frame, whether it will be in the short or long term, you can start formalizing the standard operating procedures, including the organizational chart, meetings, processes, etc.
4. Implement Succession Plan
Now that you’ve determined the training and development your successors need to fill their knowledge and skill gaps, you can incorporate the necessary training and development strategies. It’s important that you define the training, learning, and development required for leadership or other key positions so the employees can tailor their learning plans appropriately.
Transferring corporate knowledge is important as the successors prepare for advancement. This training can include mentoring, on-the-job training, secondments, and external courses.
5. Monitor Your Plan
Executing your plan is only the beginning of succession planning. After execution, managers in every part of the organization should be supervising the plan to identify any talent gaps and monitor the development of high performers.
Additionally, they need to ensure that the planned timeline is going according to schedule, that necessary key positions are filled, and that the successors perform effectively.
When Should You Create Your Business Succession Plan?
If you don’t have a succession plan in place right now, you should be focusing on building one as soon as possible. Even if you might not be deciding to leave your business any time soon, unplanned exits can still happen. Without a succession plan, your business and clients could be left in the lurch.
In general, however, the closer a leader gets to retirement age, the higher the need for a business succession plan. If a transfer of ownership is in sight, then it’s definitely time to get started on a business succession plan.
Business succession planning is a top priority to ensure continued growth and a seamless transition of power, but it’s easier said than done. At Central Financial Group, we understand how difficult it is to run a business, and that’s why we’re here to help. If you’re a business owner in Iowa, contact us today to get a quote.