Successful Succession Planning
Before you can choose a successor, you need to know
what your business needs to succeed after your
departure.


Entrepreneurs often spend so much time building their business, they give little thought to how they’ll
leave it and often get blind sided by the amount of time it takes to create and execute an effective
succession plan.

Owners often associate succession planning with simply choosing a successor. The first step, however,
lies in an analysis of what has made the business successful. Does that success rely on skills or
knowledge you as the owner have that would leave when you leave? That is often the case of sole-
practitioners such as lawyers or doctors – unless they have the foresight to bring in a junior practitioner
who will eventually take over.

Other success questions to consider: existing and future market competition, necessary technology
infrastructure, talent of existing employees, and management style. Answers to these questions can
provide the basis for decisions on whether the business can continue without you, how it would continue
without you and who would lead it.

Personal
financial planning will play a role in the succession plan whether you intend to sell the business
to an outside party or gradually transfer your interest to a key employee or family member. If you sell and
receive a single lump-sum payment, you’ll need to have a plan for what you’ll do with the proceeds –
pay
off debt, purchase or start another business or invest it. Advice from accounting and investment
professionals can help with strategies to minimize your taxes on the sale.

If you plan to transfer the business to a key employee or a family member, your
personal financial plan must focus on long-term capital accumulation to provide
cash for living expenses to replace the income you received from your company’s
profits. Creating that cushion takes time, but it will give you not only needed funds
but the freedom to allow your successor opportunities to learn and make mistakes,
without threatening your livelihood.

Entrepreneurs, particularly those with family members involved in the business,
often dread actually naming a successor because they anticipate it causing rifts
among employees and family members. Again, having an analysis of the
business and its future needs to continue its success gives you a platform from
which to discuss issues with those affected. Open communication plays an
important role in smoothing the way for your successor.

Communication will be key as you develop the person or people you’ve chosen to assume leadership.
While you may be tempted to pass on everything you know to your successor, be sure to actively listen
and allow room for your heir to learn from experience or try new ways of doing things.  Stay true to what
has made your company successful, but recognize that your successor needs to prove his or her value to
employees and customers and may actually have ideas for improving the business.

Planning how you’ll leave your business can be difficult emotionally, financially and logistically. Involving
your key trusted advisors and seeking help from succession planning professionals can help you identify
important details while keeping the big picture in focus. Start early, so you’ll have the time you need to
create, finance and execute a successful succession plan.
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Succession Planning