Succession planning – what is it and why you need to think about it
What is succession planning?
In business, there comes a time when you leave, retire or sell the business. A succession plan is your and your business’ plan for you or other staff members exiting the business.
Why is a succession plan valuable?
Having a succession plan is beneficial now and in the future. Like any plan, it includes milestones to ensure the plan is on track. It creates certainty and adds value to the business. At the time of departure, the plan ensures a smooth handover or transition.
A succession plan is the best way to make sure your business succeeds beyond you or other key staff.
It’s relevant for small businesses, family businesses and larger organisations.
A realistic succession plan means there are procedures in place to manage change when it occurs.
Where to start with succession planning
Start your succession planning by focusing on the most senior person in the business. That’s the manager, executive director and key position holders.
Which roles are important to business operations? Which roles will be hard to replace?
A succession plan develops existing employees to fill specific positions. Your plan needs to include external recruitment to attract skills and people for various roles.
The succession planning process should include;
- assessing current and future needs of the business, based on the strategic plan, goals or projects
- matching future needs with the skills of the existing staff
- a plan to manage gaps when people leave or are promoted
What does not having a succession plan mean?
The absence of a succession plan can undermine a business’ effectiveness and sustainability. Without a succession planning process a business may miss or fall behind in providing the services of the business.
A succession plan is a business’ commitment to providing services, even during a transition.
It is advisable to discuss your succession plan with your business adviser, accountant or lawyer.
What to include in a succession plan
There are no set rules about what to include. Some important details to consider are:
- the successor; family member, business partner, other
- succession type; partial or full succession
- key personnel changes and skill retention strategies
- legal considerations; buy-sell agreement, reference to a will
- risk management
- communication strategy
- financial considerations; retirement income, sale price, tax implications
Remember to revisit, relook and reconsider the succession plan, regularly.
There are templates and guidelines available online.
If you have questions contact, CVW Accounting on 9219 1300.
This blog was first published in May 2017 and has been regularly reviewed and updated. The most recent update was July 2023.