Business owners often think they have a succession plan when in reality all they have done is chosen a successor.
Sometimes they haven’t even spoken to the person, which can lead to an awkward conversation down the track if that person doesn’t want to take over the business.
In reality, the average succession plan involves much more than just choosing who’s next in line – it should take a couple of years to execute and provide a detailed roadmap to ensure the business thrives after you leave.
We spoke to Advantage Business Advisor Trevor Clark – an expert with over 25 years running successful businesses, both private and corporate – to clear the air and provide a quick explanation of what succession planning is all about.
Why is succession planning so important?
Every business needs a succession plan, regardless of how young the owner is or what their business plans are. If you plan to pass your business on, then a good succession plan will set up the framework to select, train and guide your successor.
If you’re selling, the succession plan will be laser-focused on optimising the business’s value and getting the best possible price. Trevor points out that sometimes it’s small changes that you may never consider that make all the difference to the sale:
“I was using a business plan model with one of my clients to identify the key issues for each quarter. In each case, the issue pointed to a lack of procedures. A procedure manual is a huge step forward in having a business sale-ready. By definition, a sale-ready business is one in which the owner can take a month’s holiday and not worry about the business.”
What is succession planning?
It’s important to note that a proper succession plan will take 2-3 years to execute at least. During these years the average succession plan will involve:
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- Identifying a potential successor.
- Doing a SWOT analysis of the candidate.
- Training, development and planning.
After picking a potential successor, Trevor explains that looking at Strengths, Weaknesses, Opportunities and Threats of that individual is essential.
“It takes one generation to make a business and the next to lose it. The son or daughter earmarked to take over is often not prepared. The SWOT analysis will identify what the capacity of the individual is. How to pitch training at the right level to allow the individual to gain confidence and develop to the best of their ability to take over the management role.”
Through careful training and development, a succession plan will bring the candidate to a level where they’re able to take on the role required of them. Trevor says that there’s a lot riding on the success of the average succession plan and that he’s seen the consequences when things go awry:
“I once ran a staff survey where one of the questions asked of a motor mechanic who had worked in the business for many years, was ‘If you owned the business what would you change immediately?’ He answered, ‘I would employ a new GM and then hang a sign out the front – Under New Management’. The outgoing owner didn’t realise he had failed his son in terms of training him up for the role as his successor but by default he also failed his loyal staff, customers and suppliers.”
How do you get started creating a succession plan?
To begin planning you need to first answer two questions:
- Why am I in business?
- What do I want to achieve?
Then, keep the answers to these two questions in mind to shape your succession plan.
After that you need to:
- Align your goals with those of the business.
- Communicate your plan as early as possible and share your vision.
- Choose a successor.
- Start training and planning for your exit.
To make it all possible, Trevor explains that before you start the process you need to recognise the value of external advice:
“Find an advisor you can trust and be really honest with them. Succession planning is outside of the day-to-day activities of the management team. It needs somebody to drive it. Most business owners are very time poor so nothing happens unless a third party is at the wheel. When engaging a Business Advisor by default you commit to action.”
At Advantage Business, we believe that every business is completely unique so we start by learning as much about your business as we can. The discovery process can take as long as three months, but by the end of it, we’re in an excellent position to help you boost your business’s value and ensure its success long after you’ve left.
Trevor explains that one of the biggest challenges facing a business owner implementing a succession plan is sharing the information and knowledge he has acquired over many years. It is important to acknowledge that this information and knowledge belongs to the business. Parting with this is often a challenge as it is all in the owner’s head. A business advisor can help with the process of extracting it by asking the right questions.
If you need a hand putting your plan together, take advantage of our experience. Have a no obligations chat to one of our friendly, local Advisors today. Find out how succession planning can work for you.
