In a ship or a plane, the captain is in command. And if something were to happen to the captain, the first officer would take charge. Succession planning is all about having the second in command ready. However, “succession planning” is often associated with family-owned businesses and passing on company ownership to the next generation. What if you don’t have a next generation? What if you still want the business to go on after you retire or are not in the capacity to do business? Can’t succession planning be for non-family members too? 

Is Succession Planning Only for Family and Family-Owned Businesses? 

At the core of succession planning is business continuity. Then, it doesn’t matter if a family member or an internal employee continues the business. The show must go on. Succession planning is about planning the journey for a potential leader to one day take command and run the show without hiccups. This requires years of planning, from training and grooming to legal, share transfer, and communication of the transfer. 

One benefit of passing on the company’s ownership to an internal employee is that everyone associated with the business—customers, suppliers, employees—knows them. When internal employees take the role, they maintain business relations and ensure a smooth transition. 

Succession planning is not just for large organizations, family-owned businesses, or the CEO role. It is for all organizations that want to reduce the impact of the departure of key leadership roles, like a CFO, a head of research, or a strategy chief, that are irreplaceable. 

Why Do Business Owners Need Succession Planning?

The sudden departure of a CEO or key personnel significantly impacts the business. Everyone from investors to clients to suppliers works with the person, not the company. Businesses are built on relations. Succession planning helps mitigate an organizational change’s financial and business impact and ensures the successor is prepared for the role. A succession plan has many organizational benefits: 

Reduces hiring cost: When companies decide to find and make leaders internally, it reduces the cost of finding a key executive externally. Headhunters charge a significant amount to find the right candidate. Technical knowledge alone is not sufficient to run the business. You also have to look at their strategic thinking, soft skills, personality, and business acumen, which is difficult to gauge from a set of questions and one meeting. 

Boosts retention rate: When companies hire future leaders internally, they retain the right talent. As employees know they have an opportunity to lead, they show their skills with better performance and climb their way to the key positions. 

Protects business value: As we said before, internal employees already deal with the outside world on behalf of the company. If key employees leave, they take their clientele and the knowledge and plans they have built over the years. However, if they mentor a successor, it preserves the knowledge, skill, and value. The successor can build on their mentor’s learning instead of starting from scratch. 

Gives time to prepare: The most critical part of succession planning is time to prepare, learn and make mistakes. There is always a learning curve. Hiring external talent directly for the leadership role gives them little time to prepare and demands immediate execution. 

While making a successor, you can gradually pass on the responsibilities, map how they perform, identify knowledge gaps, and provide necessary skills and training. You could also tie their compensation to financial targets through employee stock options. 

Mistakes In Succession Planning 

Succession Planning is Only for Family: The biggest mistake in succession planning is considering only family members and not non-family members. While the CEO role needs succession planning, so do other irreplaceable roles. Behind a successful business is a strong team of skilled leaders. 

Starting Late: Most business owners think of business succession a few years before retirement or when a key executive considers leaving the organization. Finding the right candidate takes time. It is sometimes a trial and error, wherein the role sees many key executives until it finds the proper successor. And once you find the right candidate, the transfer of ownership also takes time. There are several legal, taxation and other angles. 

No Contingency Plan: As a business owner, you must be prepared for the worst. What if the leader falls ill or faces an accident? There has to be a second in command to take charge. It could also happen that the second in charge leaves the company. Succession planning is an ongoing process, and the earlier you begin, the better prepared you are for the change. 

Remember, no plan is foolproof. Reality is always changing, and you have to ensure your plan is responsive to that change. A professional business consultant specializing in succession planning can help you plan and execute the succession smoothly and efficiently while safeguarding your interests.

Contact Glenn Graydon Wright LLP in Oakville to Help You with Succession Planning 

Talk to a professional business consultant to help you plan a succession process, review it periodically, document it, and implement it. An external consultant can keep the process unbiased and true to the objective. At Glenn Graydon Wright LLP, our business and tax consultants can provide services such as preparing share structures and business plans for successful succession. To learn more about how Glenn Graydon Wright LLP can provide you with the best succession planning expertise, call us today at 905-845-6633, or connect online, to schedule an initial consultation.