Securing Your Business Legacy: Why Every Business Needs A Succession Plan

What happens to the future of a business if the CEO either passes away, resigns, or retires? If systems aren’t in place to create a safety net for events like these, this can be a threat to employees and their livelihoods, including the stability of the business.
Succession planning can create a safety net, so to speak because it ensures continuity when faced with changes that may impact a business’s longevity, specifically if there is a change in a leadership position. Below you will learn more about succession planning and why it’s a risk to not have one in your business.
What Is a Succession Plan?
As noted above, a Succession Plan helps a business maintain continuity when there are events like deaths, resignations, retirements, or the unexpected for one or more of its members who serve in leadership roles.
It is a strategic plan that outlines the processes to follow to replace these important members and identify the best-suited candidate. The newly appointed member can be selected from the employees already within the company or from outside it. The relevant skills and experience will also come into play as requirements for further training and development to meet the needs of the new role will need to be established.
What Are the Risks of Not Having a Succession Plan?
If you don’t have a Succession Plan for your business, it is important to be aware of the risks involved and how these can cost different areas of the business. This can impact relationships and performance internally and how the business is perceived from a financial viewpoint externally. There are several important risks to be aware of:
- Leadership and Direction: With no plan in place there can be confusion and uncertainty within the workplace, from all levels including board members, managers, and employees. This can lead to conflict and miscommunication and negatively influence performance and motivation.
- Reputational Risk: If you have not selected a process of transference of the respective members and shares, your business, its financial position, and its place within the market can become exposed to critiques and potentially be devalued.
- Operational Disruptions: Your business’s growth, functioning, and profitability can become severely stunted, or fail, if there is no continuity of knowledge, skills, and prior experience to pass on and teach to the newly selected member.
What Can You Do to Start a Succession Plan?
If you don’t know where to start creating a Succession Plan, here are a few steps you can follow and questions to explore that will assist you in implementing it immediately:
- Include your goals and aims for your business in your will.
- You can indicate how ownership is transferred by creating a buy-and-sell or shareholder’s agreement.
- What is your business’s fair market value and what are the tax implications?
- Who will be the most suitable candidates, or successors, to take your place?
- Draft a transition plan that will detail the process of transfer of roles and responsibilities.
- Communication is key in this process, which includes your stakeholders, employees, clients, and family members, the latter also relates to a family business.
- Keep all paperwork updated, including agreements, policies, and contracts.
Future Proof Your Business
It can be easy to forget about the long-term success and evolution of your business when dealing with the day-to-day efforts of keeping it running smoothly but to ensure these processes continue, creating a Succession Plan needs to be at the top of your priority list.
Choosing the most competent and reliable successor for your business will future-proof it and create stability, clear communication, and an organised action plan.
For more information, please contact Hammond Pole attorneys:
Michelle Orsmond – michelleo@hammondpole.co.za