Long days. Sleepless nights. Laughter and tears. No, we’re not talking about parenthood. We’re talking about owning a business (though some might refer to their business venture as their “baby”).
You’ve spent your life building and growing your business, whether you started out on your own or took over the family enterprise. And while you’ve worked hard to get to where you are today, do you have a plan for your company’s future — and your team — once you’re gone?
That’s where succession planning comes in.
It’s a strategic process that helps ensure you have the right talent, people and roles in your organization. So, when the time comes for the next generation of leaders to step in, the transition will be as seamless as possible.
While there’s no one-size-fits-all approach to succession planning, we’ve put together a list of baseline considerations you should keep in mind as you chart the future course of your business.
8 Things to Consider When Building Your Succession Plan
1. When to Start
If you own or co-own a business, the time to start succession planning is now, whether you’ve been open for 20 years or 20 months. Be prepared to invest some serious time into your efforts. The Society of Human Resource Managers (SHRM) reports that succession planning can typically take between 12 and 36 months, so it’s never too early to begin. And once your succession plan is established, know that it will need to evolve as your business grows and changes. It’s recommended that you revisit your plan annually or whenever significant situations impact your business.
2. Your Current and Future Business Objectives
While there’s no way of knowing what the future holds, you should have some powerful tools in your toolbox to help guide your company’s next steps: your mission, vision, values, budget forecasts and growth objectives. Together, they will help steer the actions and direction of your business, and they’ll give you insight as to the skill sets your employees will need to get you there. So, if you haven’t established any of these for your business, start doing so ASAP.
3. Vital Roles and Complementary Skill Sets
There are some roles that, if eliminated, would not greatly impact the overall activities of your business. Some responsibilities become dispensable and others could be easily absorbed by another position.
On the other hand, there are some roles—particularly those in leadership—that are absolutely essential to your daily operations and your future growth and success. So ask yourself: which roles can your business not function without? Write them down. These should be a key consideration in your succession plan.
After identifying those crucial roles, think about the know-how, experience and skill sets that employees in those roles will need in order to be successful.
Both of these actions can help you pinpoint the personnel needs within your business.
4. The Current Skill Sets and Future Aspirations of Your Employees
Take an inventory of the experience and expertise of your employees. Ask yourself:
Do they already have the skills necessary to fulfill those critical roles?
Are they capable to take your company in the direction you’d like to head?
In what areas is your business lacking?
This is something you can uncover with the help of your human resources department and managers. If you don’t have a dedicated HR staff, you can ask your employees for a few moments of professional introspection during their routine personnel evaluations. (Also read about the do’s and don’ts of employee performance reviews.)
During this process, identify those employees who would be good candidates to step into a leadership role. PeopleScout recommends looking for employees with these types of qualities:
Flexibility and an openness to changing roles and work environments
A desire to learn new things and an interest in professional development
Excellent communication skills and the ability to work well with others
5. Recruitment and Mentorship
If there are talent gaps within your organization, you may need to look beyond the physical (or proverbial) walls of your business and consider hiring outside candidates. Sure, they will need training when they first join your business, but they should bring the right skill sets to augment the process.
If you have current employees who could someday take on a leadership position, think about what a longer-term training program might look like. What additional skills, education or (in some cases) certifications do they need? Do these candidates need to get a sense of the responsibilities in other areas of your business to help them become more knowledgeable and well-rounded? Who are the mentors who can guide these candidates along the way? (Learn more about the importance of business mentorship.)
6. Unexpected Departures
While it may be uncomfortable to think about, it’s both practical and necessary to consider what would need to happen if you, your partner or another leader in your business unexpectedly passed away or became unable to work.
The experts at Investopedia report that all business owners should consider two types of succession plans: an emergency plan and a long-term plan.
An emergency plan maps things out in case a company leader leaves without warning and a new one needs to be appointed immediately.
A long-term plan is just as the name sounds; it’s a strategy that’s carried out over a set period of time to prepare the next generation of company leaders.
Purchasing life insurance is one way to help ensure that your business continues to thrive in your absence. This coverage can help with transitioning ownership if that ever becomes necessary. And it can help attract and retain key employees to protect the future of your business.
At Erie Insurance, we offer Key Person Life Insurance and Business Continuation policies to protect you in situations such as these. Our Key Person Protection coverage provides financial assistance to a business following the death of a key employee or owner. And our Business Continuation coverage (which uses life insurance for a buy-sell agreement) establishes a contract that enables a seamless transfer of ownership if an owner passes away.
If you operate a family business, it has its own unique nuances and sets of challenges, especially when it comes to succession planning. Some common questions include:
Do your children or other family members want to take over the business?
Do they have the right skill sets and desire to lead successfully?
Do they fully understand the role and its responsibilities?
Are there family issues or tensions that need to be addressed before you can move forward?
Are you willing to adapt and change how things have always been done (in some cases for generations) to ensure the best outcome for your business?
Will you be able to leave and trust those in charge? Do you even want to keep it in the family?
Start thinking through these questions now to avoid any misconceptions, hurt feelings or even lawsuits later.
8. Your Support Team
As you start down the road of succession planning, keep in mind that you don’t have to do it alone, especially if you’re a small business owner. Talk to your accountant, your lawyer and your business insurance agent. Ensure that your human resources department is involved, as well as your board of directors (if you have one). There are even succession planning consulting firms that you can hire. All of them can help advise you on the best strategy for your unique situation.
It’s Your Life’s Work; Make Sure It’s Secure
You’ve worked hard to build and grow your business. Being covered with business insurance from ERIE gives you the right protection, as well as a team of people you can truly count on to do the right thing when the unexpected happens. From risk control services to flexible payment plans, there are a number of reasons why you should let ERIE protect your business.
Haven’t heard of us? Erie Insurance started with humble beginnings in 1925 with a mission to emphasize customer service above all else. Though we’ve grown to reach the Fortune 500 list, we still haven’t lost the human touch.
Contact Foster & Wheeler Insurance Agency today to experience the ERIE difference for yourself.