Creating an Effective Business Succession Plan for Your Business
You don’t have to wait until you are nearing the close of your career before you start making plans to create a solid business succession plan for your business. As a business owner, it should be one of the most important parts of your business operations. Creating an effective succession plan will go a long way to determine the future of your business when you retire or step down.
However, creating a succession plan for your business will not come easy. And if you are looking to leave behind a company that will continue to thrive for many years, then you have to take some decisive steps.
Most times, business succession involves the transfer of administrative power over a business organization from one person to another. There can be many reasons to consider this. And they include but are not limited to:
- Call to another vocation
- Unexpected death
No matter the reason behind your business succession plan, the most important thing is that you never want to transfer administration over your business, only for it to derail or deteriorate. That is why you must learn how to plan succession well and execute. Another good thing about succession planning in business is that your wishes are played out in your absence, or when you finally leave the center stage.
The most part of your business succession plan should constitute your business’ legal skeleton and must be part of the governing policies of your business from the start.
In this post, we will provide answers to some of the questions that have been bothering your mind. And we hope that by this, you will have no problem creating a smooth transitioning that will leave no negative impact on your business.
We will shed more light on:
- How to create a business succession plan.
- Relevant clauses necessary in business documents for succession.
- How to provide a smooth transition of administrative powers.
How to Create a Business Succession Plan
You can start by investigating the governing documents which govern your business and editing some parts out to add what happens after you quit managing it.
The governing documents that belong to an organization are the legal documents used to manage the operation and internal matters of the organization. Excluding sole proprietorship, other kinds of businesses have their respective governing documents. The unique governing documents for each type of business are:
- Partnerships: partnership agreement
- LLCs: operating system and articles of organization
- Corporations: articles of corporation, bylaws, shareholders agreement
Because sole proprietorship businesses do not have a governing document, then you should forge documents dictating the wishes you have for your company. An attorney can guide you while doing this, and it should be a section of your estate planning.
It might interest you to know that these documents could contain a will or a withdrawable trust.
The Exit Plan
A key aspect of planning a business succession is to conceptualize how you want the hierarchy of the business to be when you exit the stage. That is the first step to take when planning business succession.
You should be able to decide who takes the mantle of decision-making after you. This is exclusive to ownership since owners agree with themselves on who becomes manager, directors, or officers if they choose not to retain the responsibility of making decisions.
For example, parents may opt to pass down ownership of family business to the children when they retire. So, unless documented otherwise in the business’ succession plans, the children may take it upon themselves to become managers or any other officer.
Relevant Clauses Necessary in Business Documents for Succession
If you are intending to create a business succession plan, there are clauses in business documents that specify actions to undertake on the occasions of feud, death, resignation or other changes in the organization. Some parts of these clauses simplify that on no condition will your intentions be over-ran after you leave.
When shake-ups occur in business partnerships, a partnership agreement may be a powerful tool that will guide the organization away from turmoil. Let us study these instances:
- A dispute resolving clause provides framework for solving conflicts among officers.
- A termination clause offers guideline to follow in the event of resignation or termination of a contract.
- Some clauses provide boundaries to the influence of owners, as well as provide the next actions to take in the event of the death of a staff.
If there is no clear-cut, documented agreement on these terms, ownership in organizations may fall to persons who do not have an adequate pedigree to run the affairs of the organization.
How to Provide Smooth Transition of Administrative Powers
After documenting your succession plan, or who takes over, with the assistance of an attorney, the next step is to plan for a smooth transition of ownership to new persons.
These are some planning steps to follow:
- Assess your company’s faults in processes, and make moves to correct them.
- Teach and counsel your successor. Look externally for recruits who meet your ideal requirements for the business, if there are persons better than your employees. However, it is best that they come in on time and acclimatize to working as a staff. This will give them enough time to understand the process of managing the business.
- Motivate your most important staff using incentives.
- Determine your duties in the organization during the transition phase and beyond.
You need to also:
- Review your business for financial flaws. You can do this by calculating financial ratios for the company and comparing them with industry standards.
- Policy assessment is important too. You can review criteria for some important offices, also review job descriptions for top offices. More so, evaluate the conditions for promotion and bonuses.
Share the Same Goals With Your Successor
Outgoing management or owners must outline their goals and also elect in-coming officers who share the same goals with them. This is to ensure continuity and progression in business for the overall interest of the company. The in-coming executives in partnership with the out-going one can assess failed plans which were executed under the current management so that lessons can be drawn and strategic plans set-up to realize them by the in-coming management.
Setting Time-Line for a Smooth Transitioning Process
No less than five years should be set before taking over the administration. If extended than that, the better, as it will enhance careful policy-making and planning. While it’s good to have a date in mind for succession, some factors may delay the event. What if the successor leaves for another company that offers better packages than yours? What if you leave your position earlier than you had envisioned? Planning early provides ampule time for setbacks to occur and even further time for you to guide yourself back on the track of succession. The last year on the timeline should be strictly dedicated to the successful transition of power to the incoming management.
No one lasts in a seat forever. We are all bound to die someday, or retire at least. It is for times like those that you have to plan for succession in your business. When you do not, there will be lots of confusion after you exit, and you will end up bringing in ant-infested firewood in the image of those who will take over your business and run it aground by deploying ideals which may derail your business away from the path of success which you had placed it in.
Avoid taking this risk by planning for your succession.