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Succession Planning
Your business Succession Plan should be in place well in advance of your planned departure from the company. You'll need time to pick and train your successor, introduce them to your employees and clients before you leave the business.
A Succession Plan consists of a series of steps that are carried out in sequence and this takes planning. You will need to set your financial goals, legal requirements and a firm date for your exit from the business which will guide your discussions with your family and successor.
»Components of the Plan
The plan should list the steps and amount of time required to complete them; giving you a time frame to complete the process. Some of the steps are:
- establishing the company's strategic vision
- creating the ideal scenario for your departure from the company
- examining the field of potential heirs, buyers and other successors
- deciding how roles will be shared among the heirs
- determining who will coach the successor
- determining the value of your company, its receivables, and potential debts
- determining the succession's tax implications and how to reduce them
Depending on your ideal exit scenario, age of your children and other criteria, you may want to consider hiring an interim manager to pilot the firm until the intended successor is fully prepared. If this is the case, your plan should include an adequate amount of time to conduct an executive search.
Alternately, your plan can include a search for potential buyers-some of whom may be competitors. This is a business strategy that requires expert advice and careful consideration.
»Start With Professional Help
"Specialized firms can help appraise your business, determine your personal needs and draft your Succession Plan."
Begin by writing down what you want from the Succession Plan, both for yourself and the business. Take that list to a professional firm that specializes in business succession issues. Specialized firms can help appraise your business, determine your personal needs and draft your Succession Plan. Write your successor's job description.
Your successor should at the very least know your industry. But there are other criteria for selecting the new leader, criteria that only you know. Set these criteria down on paper as a job description and do not hesitate to talk to a human resources counselor to help write that up.
»Establish a Selection Process
Your Succession Plan should detail the process you intend to use to select your successor.
One method of encouraging potential successors to come to the fore is to ask them to develop objectives and goals for the next company leader. These should be based on the company's long-term business plan.
Another method is to assign goals to potential successors and then rate them on their success in achieving those goals.
Family members such as your children are likely to know your business, and once, they are aware of your intentions, they may express an interest in running the company. This, however, may result in some family competition and even conflict. As the business owner, you will probably have to choose between children.
»Training the New Boss
Family members may know the business but may not be so adept at making executive decisions, developing new products or talking to clients.
It will take time just to introduce the new boss to existing clients and to pass on all the undocumented knowledge that you-the existing boss-hold in your head. Keep in mind that outsiders will require even more time.
A succession planning professional can help you estimate the amount of training required and build those requirements into the Succession Plan.
Consider issues such as:
- Who will monitor the boss-in-training's progress?
- How will that progress be measured?
- Will you be setting the objectives?
»Develop a Financial Plan
As an outgoing business leader, you are likely to want to secure your financial future. Your successors naturally want to ensure the financial health of the company they will be taking over. These two goals must be coordinated and aligned.
The Succession Plan should set out your financial objectives and the means to attain those goals. This may include:
- an estate freeze
- the creation of a holding company
- the writing of a shareholder agreement
- the purchase of life insurance products.
One common method of mitigating tax implications is estate freezing. The founder's common shares are converted into preferred shares and new common shares are issued for the Succession Plan. Future gains will apply to the new shares and will therefore not be taxable upon the founder's death. The tax considerations are also important and a professional firm specializing in the field of business successions should be consulted.
»Create a Communication Plan
Open communications will allow interested members to come to the forward and express an interest in a leadership position. Your communication plan should:
- list the issues as you see them
- detail how you're going to announce the start of the succession process
- announce your selection for business leader
- address clients and employees
- list the means or media used to communicate developments.
For instance, a family meeting might be a good way to announce the start of the process. A get-acquainted cocktail and speech accompanied by a press-release could be used to introduce clients and the local community to the new boss.
»Plan With Your Family in Mind
Your Succession Plan should also contain a strategy for dealing with unhappy family members and others who were not selected to lead the company.
You may need to provide them executive or board positions or set aside funds for them to start their own companies. Again, a business consultation can help determine the proper course of action.
The creation of your Succession Plan will force you to make decisions that you might prefer to avoid. Once the plan is in place, and your family and business associates are aware of it, the company focus will be to increase efforts to improve operations and profitability.
Being proactive can save a family business/company thousands of dollars and assure its' future existence. Wise Financial Group Inc. can assist in the process and can be reached at 1-877-779-4731 or email us at info@companybenefits.ca.