Why all businesses need to have a succession plan

by Hamish Baker, 27/May/2019

If you were be forced to exit your business tomorrow, how painless and easy would the transition be - both for the organisation and those who rely on it? And how much would it be worth without you?

Succession planning isn’t just about you and your retirement - it is about any event that has the potential to impact the operation, management and value of your business between now and your ultimate exit from it.

But it is not just about securing your future.

Even if you aren’t planning to retire for another 20 years, or have already identified a potential successor, succession planning is still extremely valuable. First of all, there is the peace-of-mind factor of a well-run, well-documented business. A business that can run without you being present. Should something unforeseen happen to you, this planning will downgrade a major crisis to a significant, but manageable, event. By having the conversations now and documenting clear intentions, you could save yourself (and your family and other stakeholders) a lot of pain should an unexpected event occur.

It’s also about efficiency.

Planning for unexpected scenarios also forces you to assess who does what, why, and how they do it best:

  • Is the right person performing the task?
  • Is their process the best way of doing the job?
  • If multiple people perform the task are they doing so consistently?
  • Have we defined and documented the best process?
  • Should this task be the responsibility of a single team member?

This is also about providing a safety net for your team. Documenting the key business processes in your company enables you to devise the most efficient system for each task. Having a clear procedure to follow is helpful when a team member is absent, but most importantly when it comes time to transfer this knowledge to a new team member, manager or owner.

And last but not least, it is about maximising profit along the way.

Succession planning allows you to review your business through the lens of a prospective buyer. This may expose some areas of potential underperformance or risk, such as overdue compliance issues, problematic balance sheet items, or staff performance issues. It could also highlight opportunities that you simply haven’t had the time or bandwidth to explore, such as new distribution channels or customers, price increases, or new systems to maximise your cash flow.

Note that smart buyers will ask to see at two to three years’ worth of clean financial records. If your bookkeeping isn't all it could be, get it fixed now. And if there’s something you can do to improve profitability, do it as soon as possible.

A robust and effective succession plan takes three to five years from initial planning to implementation.

Having said that, any plan is better than no plan. Generally, the longer you have to execute your plan, the bigger the opportunity you have to maximise the value of your business on the way, and the capital you extract on exiting. And involving key team members in aspects of planning will engage and empower them during the journey.

A Succession Plan is not something you ‘set and forget’. Succession planning is an important part of your business strategy that requires regular attention and ongoing development. Want help developing your exit plan, and improve your profit on the way? Schedule a call now.

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Topics: Exit planning