Your Strategic Thinking Business Coach strongly recommends that all business owners (especially small business owners) develop succession plans. And to develop them now, rather than later. Succession planning is very important to the long-term success of any company. Leadership transitions in business affect the entire organization’s continuity, employee retention, client retention and returns on investment. It is essential to create and implement a process that creates visibility, accountability and greater integration of all facets of the business.
The rapidly changing demographics in the workplace prove that there is a real challenge to find talent for leadership roles. Companies that are able to respond proactively with strategically developed and implemented effective leadership succession plans are in a superior position in the marketplace and global economies. Your Strategic Thinking Business Coach offers the following list of ten (10) deadly succession planning mistakes that small businesses make and that you should avoid. The ten (10) deadly mistakes are:
Deadly Mistake #1: Develop a succession plan without any strategic plans. A succession plan will define a company’s business heirs, but that is only part of what is really needed. The other question beyond “WHO?” is the question of “WHAT?” will they inherit? The absence of a strategic plan will mean there are no vision, no mission, no set of core values, and no goals and strategic action plan. It is critical for current business owners to spend time planning for the future. Every business needs strategic plans to increase its viability and its market value.
Deadly Mistake #2: Fail to develop clearly focused and defined goals. If businesses do not have clearly defined and measurable goals, then they are unlikely to achieve successful succession planning. A major goal of succession planning should be to address issues relating to when is it time to sell or transfer power, what will the current owners do after the transfer, what percentage of the purchase price can be financed, what would define a great buyer for the future of the business, and what tax implications need to be considered. All these issues remind us of why so many business owners become overwhelmed and scared to think about succession planning when these key issues have not been addressed.
Deadly Mistake #3: Delay the initiation of work on the succession planning. There are a variety of reasons firms procrastinate about developing succession plans: they will say there are too many pressing matters at hand; they get depressed thinking the subject of succession planning; there is plenty of time; and the current owners will be around for a long time. It does amaze me that most small and medium-sized businesses fail to appreciate that accidents can and do happen to business owners and that is when the succession plans really pay dividends.
Deadly Mistake #4: Fail to strategically develop a market for the business. Too many small and medium-sized business owners operate under the myth that when it comes time to exit their business, they will simply sell the business, and retire with a bundle of cash. Unfortunately that is more of a myth than a reality. It is a reality that thousands of business is listed for sale each year, and there are no buyers for those businesses. Why? Basically because there is no demand and therefore current business owners need to market their businesses and “create demand” for owning the business. Otherwise, they probably will not have any choice in selecting successors or a new management team.
Deadly Mistake #5: Fail to obtain a professional independent valuation of the business. It will be hard to attract good buyers or successors unless there is agreement on a realistic value of the business. Too many times business owners are shocked that the business they have developed and the capital they have acquired is valued much less in the market than they personally value it. Another important thing to remember is that the value of the business may also depend on external factors beyond the control of the current owners, and contingency business valuations also may be required.
Deadly Mistake #6: Don’t tell the staff about your succession plans. Keep your succession plans a secret. When the staff is left in “the dark” as to who will be the successor in running the business, it creates the impression that there is no succession plan and there is real concern about how the business will continue past the current owners. And another negative result could be that the new owners will be treated with suspicion. A significant missed opportunity could result from keeping the succession plans secret since it will hinder existing managers and employees from identifying themselves as possible successors. And without a firm commitment or expectation about the future, key personnel could decide to leave the business.
Deadly Mistake #7: Commit to sell the business to an insider who does not have the needed funding to purchase the business. For sentimental reasons, many business owners prefer to sell their business to a trusted employee who has been with the firm for years. But, in reality, too many times these employees have little funding to acquire a business. If that is the case, then the current owner must develop some form of a deferred compensation plan or other alternative.
Deadly Mistake #8: Fail to train your chosen successor. Many small businesses forget to realize that the new owners must possess or obtain very critical skills and experience to successfully run the business they are buying. If key skills and responsibilities are missing from the background of a likely internal successor, then a part of your succession planning needs to be developed with the goal to train and develop that successor into a better and more qualified person. A specific and customized training program should be developed after completing an assessment of the successor’s needed skills and identifying what specific training is needed.
Deadly Mistake #9: Fail to review, revise and update your succession plan.
Some businesses make the mistake of believing that after a succession plan is written, there is allegedly no need to revise it. This is a major mistake since succession planning is a dynamic process that involves training, hiring, internal development, and external marketing. Succession plans must remain current and relevant and they need to be periodically updated and revised to address changes in the market place that the business is currently facing and will face in the future.
Deadly Mistake #10: Develop a succession plan without considering the “What Ifs?” and not ensuring the necessary protection for all parties concerned. The succession plan needs to have contingencies.