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.
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.
Is your business prepared for succession?
You can use our free Business Succession Scorecard to test your business’s preparedness for succession, based on seven parameters:
- Leadership
- Decision making
- Operations
- Culture
- Communication
- Forced exit
- Business transition.
The final items in the scorecard – Forced Exit and Business Transition – are really the acid tests for determining whether your business is sustainable and has value, i.e. will it survive without me, and let’s see what the market thinks!
If you have future-proofed your business by having a well thought out and implemented succession strategy, the business should thrive even if you’re not there, and the market should reward you.
If you are not in this situation, it’s better to start late on succession planning than not start at all.
The first thing the leader of a mature business should do is sit down with senior staff and/or family members and talk about their succession goals.
If you would like support to take the first step and develop a succession plan for your business, contact the JPAbusiness team on 02 6360 0360 or 02 9893 1803 for a confidential, obligation-free discussion.
