Okay, so succession planning isn’t the first thing that comes to mind when you think about launching a business. But turning a small business into a success depends largely on building a strong culture with strong relationships, and on having an exit strategy that you can use to help define your goals.
If you’ve yet to give a thought to succession planning, or if you’ve simply been putting it off while you concentrate on more immediate tasks, use these nine tips for getting the process underway.
- Start early. Business advisors recommend that entrepreneurs build an exit strategy into their business plan. Nurturing your future leaders, transitioning clients and customers, and establishing operating processes that will continue should be carefully thought out and accomplished over a period of time.
- Keep it in the family. If your business is family-owned and you want to keep family harmony, it’s important to make sure that your heirs apparent know exactly who is being slotted for what roles. By breaching the topic early, you’ll lay the foundation for a smooth transition. Examine the strengths of all possible successors as objectively as possible, and think about what’s best for the business.
- Train your successor. If you decide to go outside the family, start devoting some serious thought to what you’re looking for in a successor. List the skills, interests, talents, and resources your successor must possess in order to capitalize upon the opportunity your business represents. Once you’ve decided on a successor, start working with them years in advance, if possible. Doing so will expose them to all the various aspects of the business — from the shipping docks, to balancing the books, to forming or solidifying important client relationships. Be the example they learn from at each step along the way.
- Consult with the experts. Seek outside advice from professionals — e.g., lawyers, accountants, financial advisors, and business coaches. They can help you put together a formal succession plan, and to iron out any issues that surface. Also check out The Importance of Succession Planning for some good advice.
- Plan your exit. Before you pass the baton, make sure you’ve planned for your own personal future. What would you be doing if you weren’t working all day? Traveling? Carpentry? Where would you live? What style of life would you lead? Such self-examination can be a real eye opener, and just might teach you something about your own values. When the time comes to step aside, try to do so gracefully. If you plan to continue as a consultant for the company, define what that work will be and how compensation will work.
- Establish financial resources. Plan today for a better financial tomorrow. Reduce debt, set up a well-diversified portfolio, and look at investment opportunities that are independent of your primary business. There are a variety of tax advantaged retirement programs available that can help you maintain the same lifestyle in your retirement that you’re living now, provided you begin contributing to them well enough in advance.
- Prepare the business for transfer. Take stock of those areas where your personality, skills, or influence are key elements of your firm’s success. Begin a program to transfer these activities to others within the company. Also read Should You Develop a Business Exit Strategy? for some good advice.
- Review the business’s factors of success. You and your team need to determine your replacement’s exact role. Succession planning, as well as downsizing or expanding the business, all present unique opportunities to take a hard look at what you, the current leader, will do in both the near and long term.
- Determine your business’s value. In order to accomplish this you need to know the difference between the various types of buyers active in today’s marketplace. Then codify the structure by documenting operating costs and procedures, as well as the management structure.