Succession planning is the process of identifying and developing internal staff who have the potential to fill key business leadership positions should existing leaders – including yourself – leave the business.
It’s about creating a back-up system for your people resource and it should start the minute you take on a business’ ownership, whether you buy it or start it from scratch.
Put yourself in a buyer's shoes
If you’re thinking about succession, it’s critical to put yourself in the shoes of a potential purchaser at any time during your business’s life, even if you’re not thinking about selling, and ask:
- If someone paid me to hand this business over to them, what would it be like for them?
- How easy would it be to take over this business and run it?
- Are the ‘recipes and ingredients’ for what we do clear and available, or are they a secret?
How to measure the success of your business back-up
Business maintainable earnings (BME) is a measure of the robustness of a business’s succession plans.
In our eBook on How to Assess Business Value, we introduced the analogy of the diesel engine. BME is the extent to which the diesel engine keeps running and is not dependent on one individual or group of individuals to make it generate what it generates.
If a purchaser were to consider a business highly dependent on you, then their interest in the business, offer price and conditions, will be based on the time and risk involved in rebuilding your business so it’s no longer dependent on you.
Business value – whether you’re marketing it for sale, building the inherent value of the business for future generations, or just extracting value along the way – is inextricably linked to how you manage the issue of succession.
If you have a well thought out and implemented succession strategy, the business should thrive even if you’re not there, and the market should reward you.
You can use our free Business Succession Scorecard to test your business’ preparedness for succession, based on seven parameters:
- Decision making
- Forced exit
- Business transition.
The scorecard can be downloaded from our online Resource Library.
If you would like to discuss succession planning for your business, contact the JPAbusiness team on 02 6360 0360 (Orange) or 02 9893 1803 (Parramatta) for a confidential, obligation-free discussion.
James Price has over 30 years' experience in providing strategic, commercial and financial advice to Australian and international business clients. James' blogs provide business advice for aspiring and current small to mid-sized business owners, operators and managers.