A succession plan is part of any good business plan, and is critical if you are approaching retirement or considering selling your business. It will ensure your business continues to run smoothly when you or a key senior team member retires, gets sick, or leaves the company.
The rising number of baby boomers reaching retirement coinciding with economic growth means there is a shortage of experienced people to fill senior leadership roles. A succession plan identifies employees in your business who have the skills, or the potential to develop skills, to take over when old leaders leave or retire.
The benefit for your business is that it reduces risk associated with the loss of experienced leadership, and can help you maximise value as you exit.
Regardless of whether you’re running a large and complex organisation, or managing a small family-owned business, a succession plan is important. Even if you have no plans to retire in the near future, prepping someone to fill your role provides a safety net should the unexpected happen.
You may think your obvious successor is whoever is currently second in command, or, in the case of a family-owned business, your son or daughter; however, the experts strongly recommend you keep an open mind as to who should take over.
Look for the person who displays the skills necessary to thrive in a senior position, regardless of their current role. Once this person has been identified, provide the necessary training and mentoring to allow them to develop the skills they will need.
We recommend you talk to your accountant, financial advisor, or a succession planning consultant about the plan for your business when you retire. Ensure you discuss the pros and cons of handing the business to a family member versus giving the leadership to an independent party. If you intend to sell your company, a succession plan will ensure the change of ownership doesn’t adversely affect the business.
It is also important you chat to your business partner at Finance New Zealand about any likely impact your retirement/leaving will have on the firm’s funding lines, and how the purchase can be financed.
Outright purchase of a business can be challenging to finance, particularly when you’re selling to the younger generation. Without a proper succession plan, that sale may well involve a staggered payment and share transfer over time. Without a plan, options to exit can be reduced to finding a corporate buyer with a large balance sheet, or even a simple sale for asset value.
At Finance New Zealand we can help your business switch smoothly from one leader to the next. We will work with your lenders to help the transition to the new owners, facilitate new lending for the new owners, and work with the existing funders throughout the transition, communicating the planned changes and the proposed time frame.
So, while you may think retirement is a long way off, or that you don’t intend to leave the company for years, or that you’ve nothing to worry about as Junior will take over when you do retire, it may not be that simple. A succession plan will help to ensure the ongoing success of your business.