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It’s never too early to start thinking about a succession plan. Whether retirement is years out or around the corner, you want to protect the value of your business by ensuring that any leadership transfer will be smooth. Because leadership transitions can move an organization forward or hold it back, a good succession plan should be put into place five years out from the transition to help to ensure the long-term sustainability of the organization.
Doeren Mayhew’s CPAs and advisors recommend you consider a couple of key elements of succession planning to help your business prosper in the transition from one generation to the next.
Critical to any succession plan is determining who will lead the company next. Will it be someone on the inside or will you need to recruit someone externally? Take a look at existing key management team members. Do any of them possess characteristics you should consider — a strong proven track record, deep understanding of the business, human capital management skills, personal traits of a leader, ability to delegate responsibility and so on? More importantly, do they have the desire to inherit the reins? Start scouting your potential suitor early on, as you may find the perfect fit from within the business walls or you may realize an outsider might be best.
Consider forming an advisory board consisting of people you trust who are familiar with your industry. This board can help you assess the strengths and weaknesses of potential successors. Your board can also help assimilate your successor. Board members’ varied perspectives usually provide a more objective and collaborative approach to analyzing succession problems and developing fresh solutions. They can further assist by mediating organizational disputes, giving feedback on your heir apparent’s progress and reassuring business stakeholders.
Successors-in-waiting need leadership and decision-making experience before assuming the top position. For example, your successor should learn how to use your company’s financial data for tax purposes, financial reporting compliance and profitability analysis. In addition, allow your successor to:
A successful succession hinges on supportive — or at least, accepting — employees. So involve managers and key staff in the planning process. Misinformation, rumors, threats about quitting or refusals to support the new boss are common during leadership transitions. To reduce or eliminate potential sources of conflict, identify stakeholders who may have strong concerns about your next company leader or the succession process. Then work out problems with them early on.
Don’t wait too long to reveal when you’re leaving the company and whom you’ve selected as a replacement. Giving ample notice (at least one to two years) will allow plenty of time for employees to voice their concerns about your successor and the transition as a whole.
Break the news gently to gain their support for the new boss while giving them good reasons to stay with your company. If disagreements arise, discuss the issues openly and seek compromise by enabling your successor to exercise his or her newfound decision-making authority.
Remember that professional advice is critical to creating a solid succession plan. Don’t try to go at it alone. Put together a team of professionals – including a lender, accountant, lawyer, insurance advisor, wealth advisor and investment banker to guide the succession-planning process. With the help of advisors you can hammer out the details and accomplish a variety of important goals, however the big succession plan decisions must be yours.
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