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Who’s Next? How to Tackle Your Small Business Succession Plan

Small businesses don’t often have the luxury of thinking about the long term. The challenge of simply surviving often keeps most owners looking out month to month or quarter to quarter. But it’s uncommon, especially early on, that they’re able to think years down the road. And it’s especially rare to give time to extremely long-term concepts, such as small business succession planning.

That’s unfortunate because poor business succession planning can lead to everything you’ve built falling apart after you leave.

Everyone exits at some point; it’s all a matter of when and how. “Serial” entrepreneurs go into founding a business knowing that, once it has reached a certain value, they’ll sell it and start from scratch again. Some mom ‘n’ pop business owners know that one day, they’ll want to hand the reins over to their kids.

But sometimes, exits are thrust upon owners. It could be anything from a sudden illness or the business simply not going the way you had hoped, to a massive unsolicited acquisition offer you would be crazy not to accept.

The only thing all of these scenarios have in common is that a well-thought-out small business succession plan can make all of these transitions less painful for remaining employees, and make it more likely for the business to succeed after you’ve left. So even if you’ve never given business succession planning a thought, take a few minutes and check out a few tips on crafting a well-thought-out plan.

How to Tackle Your Small Business Succession Plan

Understand What You Bring to the Business

You can’t determine who should replace you until you figure out what exactly the company will be losing once you’re gone. So, assess your value to the company.

While most small business owners typically start out — and continue — as the CEO, what that looks like can vary from business to business. Do you largely crunch numbers, are you spearheading new ideas, are you an inspirational leader? Perhaps more practically: If you were to go on vacation for a month, what would your business miss the most? Figuring this out is vital to starting your small business succession plan.

Select a Successor

Next up, you’ll want to determine who will eventually fill the role. The overall goal should be finding the person best able to help the business not just survive, but thrive, in your absence. But how this practice looks will vary widely depending on your overall situation.

For instance, if you largely run a family business with no plans to step down for at least a decade, your hiring pool will likely be your children, nieces, nephews or siblings. And your focus will be on which candidate(s) can learn all the necessary ropes over time.

But let’s say you’ve abruptly decided to leave the company to begin work on another startup, your hiring pool could include anyone in your business, as well as other people within your professional circles. And you’ll be most concerned with targeting the candidate(s) who are already polished and ready to take on a leadership role.

Share Your Knowledge

After you’ve chosen the person(s) you expect to replace you, the training begins – whether that’s for a couple months or the next few years. There are three important components to this:

  1. Directly train your replacement candidate(s) on everything you do that they will also be expected to do. You’ll find that this not only helps provide them with the task-specific skills and knowledge they’ll need, but you’ll also be able to pass on some of the institutional knowledge you’ve built up over the years.
  2. Also, put your knowledge to paper (or file). Especially if you plan on leaving relatively quickly, it’s unlikely that your successor will be able to commit everything to memory. So putting together processes and procedures documents and other files detailing about what you do throughout the day will be essential – not just to your chosen successor, but also to other employees who might end up shouldering those duties if your company reorganize following your departure.
  3. Depending on the complexity of your firm, your small business succession plan should also include showing your candidate every aspect of the business from division heads, giving them a more complete view of how your company operates.

Communicate Your Plan

Small business owners might feel compelled to leave their succession plan secret until the last minute. However, it usually makes sense to share your plans well ahead of when you plan to depart.

You’ll want to share it with key personnel and possibly outside advisers first. Doing so can help you better round out your succession plan, as your company’s other chiefs might see hurdles you haven’t spotted.

But eventually, give your entire company plenty of heads-up. That can get the inevitable anxiety out of the way. Doing so will give your employees time to better prepare for the transition.

Make Sure You’re Ready for the Next Step

Your succession plan should clearly focus on giving your business the best chance at survival after you’re gone. But it also needs to include you.

Thinking long-term, make sure that you’re participating in some sort of retirement plan. That may include a 401(k), IRA/Roth IRA or even a brokerage account. You’ll also want to look into disability and life insurance options for yourself and your family.

Shorter-term, make sure that you’re in proper financial shape to make the next leap. Understand when your final paychecks will come in, when you’ll expect to be paid at your new gig, when health insurance benefits fall off and turn back on, and so forth.

You Don’t Have to Plan Your Exit Alone

It helps to coordinate your succession plan with people that have intimate knowledge of your company’s affairs. But it also helps to get objective advice from a neutral third party — especially one with experience guiding small businesses.

McManamon & Co. is an accounting, tax, fraud, forensic and consulting firm that offers custom services to companies across a broad spectrum of industries. We offer a wide array of consulting services to small and mid-size businesses, including advising on succession plans and helping you determine what you want in your company’s next leader.

Learn more about what we can do for your small business. Call us at 440.892.8900 or contact us online today.

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