SOMEDAY, YOU WON’T WANT TO GO TO WORK anymore. Before you retire to that sun-kissed beach, though, be sure to take time to make certain your business, employees, and customers are in a good position by implementing an appropriate succession plan.
The classic definition of this strategy involves preparing the company to continue operating when the owner, CEO, or other executives are not available to fulfill their roles. Large companies often assign this task to the board of directors. Smaller firms such as VARs and MSPs usually tack this project on to the owner’s to-do list. Most of those entrepreneurs commingle succession and retirement planning, which may be similar but are not necessarily the same.
“Succession plans should be viewed as an extension of the business plan,” says Rayanne Buchianico, owner of ABC Solutions LLC, an accounting and computer consulting firm in Clearwater, Fla. “You plan for the future, and that should include an exit strategy.” Even if the “exit” in question is the death of a company principal.
Adam Broughton, president and CEO of Planning Better Lives, a wealth management firm based in Austin, Texas, slanted his practice toward succession planning after a personal experience. He grew up in a family business that spanned generations, but due to a transition that went poorly, the company imploded. His book, The Founder’s Guide to Business Succession: Making It Last When You Leave, offers an entry-level look—in layman’s terms—at how and when to begin developing a handoff plan.
His website includes a 10-question succession planning quiz that will give owners an honest idea of where they are in the process. The strategy is similar for all businesses, but larger organizations will likely require more members on their transition teams to handle all the responsibilities and extra details.
Where to Start
Finding a capable succession planner may take some work. Attorneys can often help, but many focus more on estate planning than leadership transitions. Business consultants may offer these services as well. You will likely need a team, not a single person, to manage a transition project. The Exit Planning Institute offers a range of resources on its website to help you build and carry out these crucial business strategies.
Buchianico advises MSPs to outline all the requirements an outsider would need to have if it’s impossible to groom a co-worker to take over. She herself, for example, once had an arrangement for her tax business with a close competitor. If either one couldn’t run their own company for whatever reason, the other would temporarily take over and operate both firms. If the worst happened, they had an agreement covering operations and takeover procedures, including buyout details.
Needless to say, the worst can happen too. Owners sometimes transition to an urn on the mantle rather than a sun-kissed beach. Life insurance shouldn’t be the sole focus of a succession plan though. A policy may cover the financial aspect of the company’s loss, but it can’t replace the leader’s role in the business.
“Define each role in the company,” says Buchianico. “Determine which are critical and how to replace those people. Review current employees, colleagues, and family members to see if a suitable replacement already exists.” If so, she continues, discuss the idea with that person; if not, begin compiling a list of required qualities for the replacement and outline how to find that person.
“By the time a company is five to eight years old and well established, many owners start to plan for the next five and 10 years. That’s when succession planning should start,” says Buchianico, who notes that history has been kind to businesses with that kind of forethought.
“Henry Ford started his company in 1903, and thanks to a century of succession planning, his business is doing just fine,” she says.