What is Succession Planning in Business?
Succession Planning for your business may not sound like a fun idea, but it's important to make sure your wishes are met. Read more here.
You are now a successful business owner, you like your dedicated staff and you are earning a decent profit – it’s a business success story. So what happens when you are intending to leave your business? Whose hands does your legacy fall into? This is where succession planning comes into play.
Succession planning, judging from its name, is the passing of ownership, management and control within a business. It refers to you taking a leave from the management but not necessarily quitting the ownership of the business completely. When making your arrangements, it is wise to contact a lawyer to make sure your plans are clear.
As NSW Business Chambers points out, there are three avenues to a business succession:
- Ownership succession – the focus is on who will own the business, along with discussing details of when and how it will happen. It allows the business to smoothly adjust to future transitions, in other words it ‘grooms’ the business so you can get the most desirable price possible when and if you plan to sell.
- Management succession – this deals with who will be running the business and making the managerial decisions, the changes that will occur, when the management can be held accountable for the results and how the results will be realised.
- Internal succession – this is a means of developing, nurturing and retaining talented employees within the business by grooming them for positions that become available when an owner or other senior employees leave the business. A good internal succession plan ensures that the people with the best potential working within the business can be promoted to, and groomed for, key leadership roles in the business. It can be roughly called, “replacement training”.
Why do you need a succession plan?
You may be sitting there thinking that you have no plan to retire or sell your business anytime soon. In which case, having a succession plan so early seems like a waste of time. However, it’s never too early to start preparing.
The earlier you start it the more beneficial it will be for you. Without a succession plan, an unexpected event, such as illness or death can put your business at stake. Also, early planning can help you in maximising your business’ value.
Furthermore, below are five more reasons a succession plan is useful. These should persuade you into forming a business succession plan that:
- Enables you to establish and progressively build up the capital value of your business
- Allows your business to attract and maintain the loyalty of the best staff members
- Ensures a smooth transition that lessens the chances of disruption to operations. This is because there will be clarity around who can undertake decision making
- Maintains accountability
- Equips you with the ability to handle short-term emergencies in case of a key staff member falling ill or leaving
Ananya is currently working in our content team as a Paralegal, aiming to provide free legal guides to facilitate public access to legal resources. Pursuing her interest in the regulation of emerging media, her work centres on the legal and business concerns engendered by the application of traditional legal principles to social media.