There is a popular saying in the business community – if you fail to plan, you plan to fail. But, with your business at the peak of success and a promising financial future in full view, it can be difficult to take a minute to consider what would happen to your business if you left.
A 2022 national survey shows that more than 1 in 4 Australian business leaders do not have a succession plan for top leadership positions. Yet leadership transitions are an inevitable part of business.
You may not want to envision a future where you no longer run your company, but ignoring the possibility could harm your business’s resilience. Without a succession plan, you risk leaving your business rudderless and facing legacy loss, knowledge gaps, stalled strategies, and overall disruptions.
A succession plan can help you bridge the gap between open roles and capable leaders. It allows you to nurture a new crop of leaders early on so that, when you do leave, they can maintain the momentum and workplace culture you have worked so hard to create.
Therefore, in this guide, we answer a simple yet often ignored question: What is succession planning and why is it important? We review how a succession plan will benefit your business, what factors you should consider when creating one, and why you should put one in place as early as possible.
First Things First, What Is Succession Planning?
Succession planning is a business strategy that allows companies to transition key roles within the organisation. Businesses use succession plans to ensure a smooth transition when company leaders (and other key employees) retire, resign, die, or go on sabbatical.
Within HR, succession plans act as training guides, allowing the company to identify skilled employees and train them to assume control of certain roles in the future. They help nurture the next generation of executives so there is never a knowledge gap when a leader transitions out of the business.
Succession Planning for Small and Family Businesses
We often think of family businesses when talking about succession – and with good reason. Succession planning for small and family-owned businesses can be more nuanced than for larger corporations.
The board of directors often oversees succession planning in large companies, and the decisions made affect the employees, shareholders, owners, and other key players.
In a small or family business, the decision often comes down to you, the business owner.
It is easy to assume that the next generation should naturally take over your business in your absence. However, experts maintain that a good succession plan is based on preparation, not pre-selection.
There is no telling whether your children or relatives possess the same leadership skills as you, and this is where training comes in.
Rather than leave your succession plan to birth order and natural selection, you need to identify and nurture skills in the person (or people) you want to take over your business. This means even small and family businesses need a solid succession plan.
So, What Happens If You Don’t Create a Succession Plan for Your Business?
Well, according to economic experts, you risk losing a lot of money. The Harvard Business Review estimates that the S&P 1500 loses about $1 trillion in market value yearly due to poorly executed C-suite and CEO transitions. While you may not record such astronomical financial losses yourself, by not formulating a succession plan, you risk:
Losing Your Company Culture and Identity
You may have heard of new CEOs who come into a company with much pomp and colour only to flame out in a few months. They may even damage the organization’s standing with its clientele and partners, necessitating a lot of PR and image therapy.
Usually, this happens when a CEO enters a company without a solid understanding of its culture, identity, and consumer base. Such a CEO would try to impose their core values – different from the company’s – onto the business, damaging the brand’s reputation.
A good succession plan allows you to not only identify a viable successor for your business but also to “bring them up” within the company culture so they can uphold it in your absence.
Destabilising Your Business
Succession planning also protects your business from the destabilising nature of change.
If the past few years have taught us anything, it is that the world could turn on its head at any moment. You could fall ill or get injured, a competitor could poach a key employee, and so on.
Think of a succession plan as insurance against uncertainty. Just as you would cover your business against fire or burglary, succession planning offers it greater stability and resilience during leadership transitions, allowing it to retain market confidence.
Your Employees Losing Morale
While most companies tout to be competitive workspaces, very few are. Without a clear promotion policy and succession plan, you risk demoralising your employees, who may feel there are no opportunities for growth and advancement within your business. A good succession plan can help you motivate and retain top talent.
Stagnating Knowledge Exchange within Your Business
It can also facilitate the nurturing of said talent. Once you identify the roles crucial to your company’s success, you can set up systems of information exchange so that there is always someone who can take the reins when a transition becomes necessary.
Senior officials can identify competency gaps and initiate mentorships, coaching, and job shadowing programs to elevate the skillset within your organisation, covering all your bases.
What Should You Consider When Formulating a Succession Plan?
Yet, despite the glaring benefits to your business, succession planning is no walk in the park.
You need to do more than just pick your successor; you also need to set up systems to train employees to fill competency gaps within the company, set clear promotion policies, evaluate the impact of certain promotions on company morale and performance, and more.
Some factors you should keep in mind as you envision your succession plan, include:
- Ownership Succession Vs. Management Succession: While the right person to take over ownership of your business may also be the best person to run it, consider that this may not always be the case and make contingencies.
- Outside Recruitment: Your current employees may not always possess all the skills you need for a strong succession team. Consider scouting, courting, and grooming talent from other companies to join your ranks. They may even deliver unexpected insight into your competition.
- Diversity: Train a diverse range of skillsets, employees, temperaments, and backgrounds to create a diverse succession team that brings different perspectives to the workplace.
You may also want to create an emergency succession plan in case a transition happens unexpectedly.
Ready to Create Your Succession Plan? Talk to an Inline Expert Today
Not many business owners enjoy ruminating about the day they hung up their coats, especially when that future is still a long way off. But the earlier you put a succession plan in place, the earlier you can relax into your role and enjoy the peace of mind that comes from knowing your business has a secure future.
At Inline Partners, we understand the anxiety that accompanies leadership transitions, and we want to help you through it. Whether you plan to exit your business next week or 20 years from now, our experts can work with you to ensure your business – and family – are set up for future growth.
Reach out to us today to discuss your exit strategy and the solutions that may help you achieve your long-term business goals.
