in: Company News, General Business
Is business succession planning part of your C-suite conversation? If not, it should be.
According to the Harvard Business Review, most boards are unprepared for leadership transitions. Such preparation takes years, not months, and it’s inevitable. People retire or choose to work for other companies. When that happens, companies that are unprepared for leadership succession find themselves scrambling to fill the most important seat in the house. Working with a business consultant to set up a solid succession plan is important for your company’s long-term viability.
Business Succession Planning—Inside or Outside Choices?
One of the first questions that often comes to mind when companies are considering business succession planning is whether they should look for a candidate from inside the company or outside. There are pros and cons to each choice and, increasingly, companies are looking outside for the right successor.
An outside candidate can shake things up and bring fresh perspectives to the C-suite. Like a breath of fresh air, these successors bring with them a wealth of experience outside of the company culture, and this may translate into new ideas, fresh energy, and renewed and profitable direction.
The converse of this is that an external candidate who brings in too much change too quickly can derail a healthy company. The board, or the team choosing the successor, must weigh all factors carefully.
A successor chosen from inside the company also offers numerous advantages. Such successors know the company’s business well and can continue steering it in a healthy direction. They may carry with them institutional knowledge that is invaluable. Promoting a candidate from within for such a critical position sends a clear message to the employees that loyalty is rewarded, and opportunities exist for advancement.
No one way is right or wrong, but each must be considered when forming succession plans.
What Happens If You Neglect Succession Planning?
A PriceWaterhouseCoopers study found that only 36% of small businesses survived after being passed to family members. One of the reasons so many businesses did not survive the loss of the founder is lack of succession planning.
Handing over a business to someone, whether it’s a new CEO hired to run the firm or a small business owner passing the business on to a child, is more than just handing over the keys and the passwords and wishing them well. Succession planning involves many steps. If neglected, the successor may lack the necessary information or tools to be successful.
Poor succession planning can also lead to business failure. For example, the founder of a popular restaurant insisted that his children retain 100% ownership of the company. Even as the children retired and the grandchildren continued the family business, their parents—still the legal owners of the corporation—continued to meddle in business affairs. This curtailed any creativity and growth plans brought forth by the third generation now entrusted to run the business but not allowed to own it.
Business Succession Planning Requires a Team Approach
Many small business owners attempt to create their own succession plans, but this has drawbacks, too. Even though their children may be keen to take on the business, the founder cannot rely on his words alone carrying them through the transition.
For example, a contractor who tried to leverage a trust and sell the business to his children cost them millions in taxes because his estate was not set up to take advantage of the IRS laws regarding business succession. If he had consulted an expert in estate planning, tax planning, and business succession, his children may have been much better off financially.
Good business succession requires a team: an attorney versed in succession planning, a tax accountant, and perhaps an estate planner for a family-owned business. It’s not just the immediate passing on of the business that matters, but the long-term vision that must be established, shared, and planned for to keep the company going for many generations to come. That takes a team who understand the ramifications of each decision from the founder and how it will impact the business’s successors.
But don’t be daunted by the effort. Any moves toward business succession planning will already put you ahead of the many companies that lack such a plan. And putting together an expert team can begin with a conversation with a business consultant who has the contacts and experience to get it started.
Mindover Software can assist you with business planning. Contact us or call 512-990-3994.
