Demystifying succession planning
Succession planning is an important facet of any company. In small to medium enterprises it is often overlooked. This can lead to complications should you as the business owner ever decide to leave the company you have started.
And it’s not only when the owner wants to move on. What about when a key employee decides to leave? How does the company keep functioning and thriving in the wake of worker turn over?
These are not the types of questions that are often considered while building and running a business. But they are very important issues to resolve when the need arises. These are questions and scenarios that successful succession planning addresses.
What is succession planning… exactly?
Succession planning focuses on developing company employees into leaders. These are the workers that have been identified as having the potential to take on leadership roles. As current leaders leave for whatever reason, these new leaders can fill their positions.
This assists employees to efficiently move through an organisation’s ranks. As opportunities arise, employees have been prepared and are able to take hold of them.
Succession planning focuses on and plans to ensure there are no voids in the event of employees leaving the company. While this is the underlying idea of succession planning, it is one way to retain employees. Knowing that there is room for growth in a company is a key way to preserve staff loyalty and enthusiasm.
The way that succession panning is formalised is to have a written and documented policy in place. This policy will then be followed in the event that the situation arises to make it applicable.
What are the benefits of having a succession plan in place?
All companies experience unavoidable staff turnover. This is at the various levels in the organisation. A company cannot escape the effects of retirement, illness and other unforeseen circumstances. A strategy is needed to meet the corporation’s needs in those periods. Without such a plan uncertainty can and almost certainly will have a negative impact on relationships with customers. It could even mean a knock-on effect with other key employees. This could lead to compounding uncertainty that can mean operations are not as effective as they should be. All this could result in a loss of stability and ultimately income for the company.
When an effective succession plan is in place, a company is able to bring stability to its operations even during times of turbulence.
How do you plan for succession successfully?
For a succession plan to be effective it must be driven by data. Facts and figures must be the bedrock of how the plan is formulated and implemented.
The steps of succession must be defined objectively. Emotive elements must be minimised for the sake of the company’s good.
A sensible and meaningful succession plan will give objective definitions of workers’ roles. Candidates for succession will be identified by objective criteria as mentioned above. Their strengths and capabilities will be measured and analysed systematically. This will be used to guide their development as laid out in the strategy.
By implementing this process these employees will be ready to step into their new leadership roles whenever it becomes necessary. For the company it will mean that at any given time leaders who know the company will be available and ready to take the business forward.
These leaders will not only have the skills to fulfil their functions effectively. They will also know the company’s culture and ethos. These are leaders ready to lead that know the business’s values and goals.
This is how to sustain stability and momentum during times that would otherwise be unsettling. This will mean the difference between thriving and surviving. It could even mean the difference between a business remaining operational or shutting down.
South Africa’s small to medium enterprises
A major factor in the South Africa’s economy is the prevalence of SME’s. Despite the challenges facing these companies, they continue to show resilience.
However, many lack a workable succession plan. Over 80% of family owned businesses do not have documented plans in place in the event that succession is necessary. An effective succession plan needs to be robust and clearly communicated. This means that for the overwhelming majority of SME’s the partners of the company do not have a clear process to implement in the event of a partner’s death.
While this would be the most extreme scenario that could jeopardise a company there are other situations of concern to consider. A partner or co-owner could face personal bankruptcy. Divorce for one of the leaders who is married in community of property could have consequences for the organisation if nothing is in place. One of the key managers or associates could become disabled and is no longer able to fulfil their duties.
Disputes amongst partners or the need to terminate employment or dissolve partnerships are all circumstances that need to be addressed before they occur. This is where succession plans are so vital. But for most SME’s nothing is in place to adequately ensure continuity should any of these events come up.
Types of succession plans
We have dealt with the overall concept of what a succession plan seeks to accomplish. We have considered some practical aspects of what a successful plan will entail.
Now we will briefly look at two common types of succession plans that an organisation can adopt. These will mainly deal with what happens on the owner/partnership level in the event that someone needs to succeed the current owner. The type of succession plan adopted will depend o the ownership structure of the organisation.
Buy-sell agreements are considered very effective for businesses with multiple owners. Many family businesses will find them ideal. They serve to protect the remaining owners in the event that one of the partners needs to exit the company.
The way a buy-sell agreement works is that it stipulates certain procedures in the event of predetermined events. For example, if a partner unfortunately dies or is disabled, requirements from the remaining owners/partners are initiated.
This is usually a buy out of the deceased party’s share of the business by the remaining business owners. Planning for payment of this portion of the business is necessary in conjunction with a buy-sell agreement. Purchasing a life insurance policy usually provides for this scenario.
Whether a company is managed by its owners or is managed by a manager without any ownership of the business affects succession plans. Where someone who is not an owner manages a business, succession plans allow for the replacement or resignation of the manager. This means that there will be decreased instability in such process.
It is possible for a business owner to retain their position as a manager while transferring their ownership. This would all be dealt with in the succession plan.
Morebo Wealth will help you to formulate the succession plan your organisation needs
We at Morebo can assist you with the specific needs of your company. We can and will provide you with the help you need to formulate a succession plan. It will be tailor-made for your business’s specific needs. Whether your company is just starting or has been running for decades, we will help you with your succession plan.
Contact us today to discuss ensuring a successful future. For both yourself personally and the company you have worked so hard to prosper.