Broadly, what is small business succession planning?
The term succession planning refers to a business strategy companies use to pass leadership roles down to another employee or group of employees. Succession planning ensures that businesses continue to run smoothly and without interruption, after important people move on to new opportunities, retire, or pass away. It can also provide a liquidity event, which enables the transfer of ownership in a going concern to rising employees. Succession planning is a good way for companies to ensure that businesses are fully prepared to promote and advance all employees—not just those who are at the management or executive levels
–Source: Kenton, Will “Succession Planning Basics: How It Works, Why It’s Important.” Investopedia, Dotdash Meredith November 28, 2022, https://www.investopedia.com/terms/s/succession-planning.asp, Oct 11, 2023
The Divisions of Succession Planning
However, succession planning can be divided into three components: ownership, management, and leadership development. Ownership succession planning is concerned with the transfer of ownership or company shares from current or future owners to succeeding owners. Management succession planning is concerned with staffing executives, administrative functions, e.g., finance, accounting, &c., operations, e.g., research, manufacturing, logistics, &c., and key projects and programs. Leadership development involves certification and the cross-training of employees to help them develop skills, knowledge, and an all-around understanding of the business. Importantly, a process of identification of roles and their required competencies, and talent, their skills and psychometrics, and then monitoring/reporting of their progress in this effort.
In larger organizations, the Human Resources department along with senior management plays the lead role in the succession effort. However, allied disciplines are Business Continuity Planning and Business Exit Planning, which is of particular importance for the small firm. In the circumstance of planning leadership succession, Business Exit Planning defines exit-related objectives, e.g., risk minimization, valuation and returns maximization, and early transaction completion, for business owner(s) and consequent strategies with reference to private, business, financial, legal, and taxation constraints and targets.
So for your succession plan, a decision must be made on how to exit your business; carry out a valuation of your business; prepare for the transition; and review your plans periodically.
–“Succession Planning: Why It’s Important to Consider it Early.” mp3, May 4, 2022, The Hardford, The Hartford, https://sba.thehartford.com/media/podcasts/succession-planning/, Oct 14, 2023
–Richard Thomas
