So you’ve taken a moment to step back to survey the successful business enterprise you’ve built, and you realize you need to create a plan for the succession of your business. At some point you’ll want to retire, or you’ll pass on, as all of us eventually will. What would be your number one concern if suddenly you were unable to run the business? If you plan for your business to provide value to you in your retirement, or to continue to provide value to your family after you’re gone, likely your biggest concern is management succession. Who will provide leadership in your absence? Who will manage your employees? Who will maintain your customer and vendor relationships? If, like many business owners, you are the one filling all of these critical roles, you will need to consider developing people to fill your shoes when you step away.
The best place to start this process is to break your business down into components and evaluate who the key employees in each area are. What are their skills; what critical functions do they serve? Do they have the experience and skills to successfully lead the company? Are they respected by the other employees, and do they have the characteristics necessary to be an effective leader? If this examination reveals certain areas of the business operations that rely solely on you for leadership and direction, you will need to consider developing a layer of support. Are there individuals who are already part of your organization, who have the ability and aptitude needed to make the kinds of analyses and decisions you make? Do they have the depth of understanding of the industry, and the foresight needed to guide the company in the future?
One issue that commonly arises in closely-held business situations is the involvement of family members in the succession plan. It may be difficult to communicate to a family member that he or she is not entitled to take over running the business based on ancestry alone. It is critical, if a family member is to succeed to the business, that he or she is qualified and committed to continuing your vision in the best interests of the business and its employees.
Day-to-day operations are important, but long-term business strategy will determine the ongoing success of the business. If you don’t have a board of directors, or a board of managers if you are an LLC, you may want to think about forming a board. Ideally, a board of directors or managers is comprised of individuals with knowledge of your industry and your business. Think of individuals who would be helpful in creating a business plan for the company, as market conditions, technology and the economy change over time. The board members may not have any involvement with the day-to-day operation of the business, but would keep tabs on its financial health, and make decisions outside of the ordinary course of the business. Building a reliable board while you are still around to share your ideas will help to ensure that your vision for the future of your business will be carried forward.
While the directors’ or managers’ role is to make high level decisions and to keep the business moving in the right direction, the officers’ role is to govern the day-to-day operations. The officers have more hands-on responsibility for ensuring that the strategies and decisions laid out by the directors are being implemented. If you are the President, you may consider naming one or more Vice-Presidents, and grooming your replacement by involving him or her in some of the higher level operational decisions.
Your professional advisors, i.e., your attorney, accountant, and banker can be valuable resources who may guide you in developing a management succession plan. Additionally, there are small business consultants available who may help you to work through some of the more emotional aspects of formulating a plan. These can be very difficult decisions, which may take a considerable amount of time and mental and emotional energy to discern and to implement. It is important to start this process long before a management succession plan becomes necessary, to maximize the potential for a seamless transition of your business.