Business Succession Planning

By David G Komatz

Privately owned businesses are a key part of business in the US. However, many small businesses fail to consider what will happen to the business once they retire. Most of the time spent in the business is related to building, hiring the right people, working against the competition, but rarely succession planning. This is a misstep that should be corrected. Most business owners don’t want to address succession planning because it reminds them of having to retire or even that they will someday pass away. Successful business owners cannot imagine anyone else running their business, so they don’t address the issue. With that attitude the potential for a business to have to close when an owner passes away or retires due to health issues, then there is no time to plan. Succession planning needs to be done now.

• Language: English
• Publisher: David G Komatz
• Release date: Jul 19, 2018
• ISBN: 9780463382967

David G Komatz

David has been a practicing accountant with extensive experience and is knowledgeable in all areas of accounting and taxation. David graduated with a BS in Accounting from Capella University, an MBA in forensic accounting from Southern New Hampshire University and Master’s Certificate in Criminal Justice from Capella University. He has completed his second full Masters Degree in Organizational Leadership and a second Masters Certificate in HR Management. David is now studying for his Doctoral degree in Global Business and Leadership.In addition to his extensive education and experience, he is also an accomplished writer. He has published over 30 articles on Ezine.com and has completed several consulting manuals. He is also working on completing numerous eBooks which will be published on Smashwords.His online articles can be accessed at this site:http://EzineArticles.com/expert/David_G_Komatz/1543625Please read and review the articles. Let David know if there are other articles you would like for him to write.You can reach David at:845-701-9816accurateacctg@yahoo,com

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Business Succession Planning

Crossroads Business Publishers

Copyright © 2018 Crossroads Business Publishers

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Chapter 1: Business Succession Planning

Keys to Effective Succession Planning

Privately owned businesses are a key part of business in the US. However, many small businesses fail to consider what will happen to the business once they retire. Most of the time spent in the business is related to building, hiring the right people, working against the competition, but rarely succession planning. This is a misstep that should be corrected. Most business owners don’t want to address succession planning because it reminds them of having to retire or even that they will someday pass away. Successful business owners cannot imagine anyone else running their business, so they don’t address the issue. With that attitude the potential for a business to have to close when an owner passes away or retires due to health issues, then there is no time to plan. Succession planning needs to be done now.

Succession planning is a multi-faceted and complicated subject. Owners know any succession selection will likely isolate those who are passed over, potentially offending key people in the organization—who may leave.  If employees include the owner’s family members, family dynamics—good and bad—will be drawn in, making most owners anxious about succession planning.  Most business owners simply don’t know how to approach it.

Benefits of Effective Succession Planning

Succession does not always progress as the owner imagined. There is the likelihood that the owner may suddenly die, become disabled, or receive an employment offer that will force the owner to leave the business. Strong succession planning offers stability not only for the future of the business, but also to lenders, investors, suppliers, vendors and customers. It helps to conserve and shield one of the most important of business assets-it’s people. The people possess experience, knowledge and intellect which is critical to the ability of the business to remain a going concern.

It is the responsibility of the board or others who are in control to make succession planning a priority, many times the decision might override immediate and substantial issues. In addition to being necessary for risk mitigation, succession planning provides some specific benefits: 1. It provides a framework that drives senior executive improvement, aligning leadership at the top of the business with the strategic plans of the firm. 2. It gives the CEO, through an ongoing examination of the job requirements, the occasion to fine-tune his or her role in light of changing business factors and strategic essentials. 3. It strengthens the connection of information between the board and the senior management team through habitual contact that is part of the board’s appraisal of candidates.

Perform habitual, in-depth reviews.

The succession plan should be reviewed twice a year, including an assessment of the appropriate bylaws and succession processes and a review of the baseline competency requirements for the next CEO—a working document that recapitulates the requirements if the search for a new CEO were held immediately.

To establish those requirements, the board should begin by examining company trends and strategies over a five to fifteen year period, considering the impact of various circumstances in which the business will be affected by challenges including supply chains, customers, competitors and investors, or the risks and opportunities brought by changing climate and economic conditions. Looking at the impact of broad developments such as these will help to ensure that the company’s next leader will have the capabilities and experience necessary to react to unfolding multifaceted events across numerous fronts. The board should also use this opportunity to scrutinize successful CEOs from inside and outside the industry and identify characteristics that have contributed to particular success.

The board then refines these considerations into a set of requisite capabilities. Depending on the company’s situation and strategic direction; some capabilities will be considered essential and others of secondary or little importance.

Evaluate the list of candidate qualifications against the firm’s senior management.

The board should be updated semi-annually with a list of internal candidates who could assume leadership through the succession plan. The leadership development plan of each candidate should be updated as well. If there is not an internal candidate from which to choose, then recruiting from external candidates should be done. If recruiting externally, the choice needs to be made at least three years prior to the changeover thereby allowing the candidate ample time to learn all of the aspects of the business.

Factors to Consider When Developing Your Business Succession Plan

Many companies today do not have a strong succession plan in order to replace a CEO, CFO, COO or other executive. This also applies to high level managers and single owners. Not having a succession plan is perilous to having a business continue on into the next generation. Key executives could become unavailable due to illness, death, personal circumstances or career decisions at any time. If there is no contingency plan in place, then the company can suffer greatly and face unexpected loss. Bringing in replacements under duress will oftentimes result in poor choices. The factors that should be considered in these situations are listed below.

1 Internal candidates. People hired externally come with a higher cost because they often give up unfulfilled career options, which may include equity positions, bonuses and more. They also have a greater learning curve, even if they come from the same industry. This is true because they don't know how their new company works. Internal candidates, have a background at the firm, and normally don't require as much additional compensation and are more stable.

2. Candidate development. Internal candidates must be tutored for new positions. The process starts with finding high-potential candidates before focusing on development. Candidates should be exposed to different parts of the company through assignments in various departments.

3. Family considerations. In a family-owned company, succession can be particularly troublesome because business mixes with family dynamics. Family members should be given the opportunity to learn about the company and decide if they want to be a part of it. At the same time they can be evaluated for leadership capability. There are also other considerations, such as tax planning and equity transfer between generations. 4. Multiple candidates. A company should utilize talent at lower levels so there are multiple candidates to take the place of a given executive or manager. If you limit prospective replacements to one individual, that person becomes a possible point of critical failure if he or