5 Steps for Succession Planning in Your Small Business
Do you have succession plans in place?
It’s a fact of life that one day you may want to exit your small business. Similarly you shouldn’t expect employees to stay with you forever.
It’s important to have succession plans in place to manage your’s and employee exits to minimise disruption to the business.
Here are 5 steps for succession planning in your small business. The below will apply to your succession planning but some will also apply to succession planning for your employees.
1. Plan ahead
This means having a plan in place for your own exit, well before (some say around two years) you actually want to exit.
For yourself you need to choose your successor. This may be a family member and can involve setting up a trust, gifting or selling the business to family members.
A non-family succession plan involves selling your business to an employee(s) or other owner(s).
In either case you should get professional legal advice on your best options and requirements for setting up a succession plan. A professional can also advise on timing, tax and financial implications of your exit.
In terms of your employees, you should a plan for how you would replace all members of your team, if needed. This may be temporary relief such as using agency staff, backfilling internally or external recruitment. If there are potential successors internally, you need to provide learning and development opportunities to support them.
2. Transfer knowledge – now!
It’s good practice in any business to ensure that specific knowledge isn’t held by just one person – including the business owner.
It’s the ‘holiday’ plan. Someone who can back-fill another person’s position or duty if that person was on holiday or unable to be at work for any other reason.
Having a buddy system at work is a good idea, so employees can shadow each other and get to know other areas of the business or learn new skills.
This can be a valuable employee retention tool by providing learning and development opportunities in the workplace.
Employees may also appreciate the opportunity to formally ‘act up’ at a higher level or even move sideways to backfill another position.
However it’s important that employees are comfortable with any new and additional duties and you’re not just giving them ‘extra’ work to do.
You may need to review position descriptions and check relevant legislation, Awards and Fair Work Acts to ensure you’re meeting your legal obligations.
3. Have your administrative ducks in a row
- Have you organised training for successors and do they have all of the access and authority they need to do their job?
- Do you have systems and procedures in place?
- What are the risks involved in succession?
- Are all of your procedures and polices, employee contracts, work agreements and position descriptions up-to-date?
- Have you spoken to key suppliers, customers and stakeholders about the succession?
- Have you considered your’s or your employee’s intellectual property?
4. Sort the legal stuff
- Are the financial and tax implications for your succession sorted?
- Do you have the insurance policies you need in place now?
- Does your Will and Estate plan need to be updated?
- Will there be a change in legal structure when you leave?
- Do you need a legal document that dictates the terms of the succession?
- Do you need to change/transfer any registrations, licences or permits?
5. Handover and transition
This is where you put in place a staged transfer of responsibilities for any successors and give them training.
You may agree on a transition period before final handover.
Finally, it’s important to consult a professional business adviser and/or solicitor when developing your own succession plan and consult your preferred successor(s).