If you’re thinking of exiting your business, management succession planning is crucial so that you can maintain control over how and when you leave your business and arrange suitable terms.
As there are many ways you can exit a business, it’s important to consider all aspects and even think about working with someone to guide you through the process.
Here we look at why management succession planning is so important, what it involves and why it’s crucial to plan in order to ensure a seamless transition and favourable terms that continue to work for you over time.
Why is Management Succession Planning so Important?
In most cases management succession is underestimated, most business owners believe that management succession can be completed relatively quickly and fairly simply, and neither is correct.
In the best examples of management succession done well, this is a process for somewhere between two and four years. In an ideal world, we need to start way before the owners intend to exit or hand over control.
Many business owners are concerned about confidentiality and don’t want their staff to think they are leaving – the reality is staff already know you are leaving – they just don’t know when or how or what their role will look like going forward. Providing clarity and a certain pathway to management succession will ease a lot of stress.
Many business owners are “control freaks” and do not believe that staff can run the business without them – this is only true if they are not prepared trained and qualified over an extended period leading up to the handover.
What does a Management Succession Plan involve?
Firstly, a skills assessment matrix to determine any gaps, training needs and experiences which need to be factored into the plan to better prepare staff for future roles.
In addition, an organisation chart should be drawn up mapping the current position, the org chart in 12 months 24 months and five years, this will allow identification of gaps where we may need to recruit externally to fill positions or focus on upskilling existing employees.
The plan should also include a strategy including key milestones and timelines for the founders/owners to step back from various roles within the business gradually. Finally, any management succession plan should include success criteria and “deal-breaker” criteria – when do we realise it is not going to work and what is our plan B?
Succession Plus is a selected 55/Redefined partner offering strategic advice for SME owners who want to consider or manage succession and exit planning. Whether you want to run your business on a part-time basis or plan to move away completely, you can take advantage of expert advice. Contact a Business Planner at Succession Plus today.
How do You Create a Management Succession Plan?
The starting point for creating a management succession plan should always be communication with your management team and wider employee base.
Management succession often comes with a lot of fear and stress (much of it misplaced due to lack of communication which means employees make up the story from a place of uncertainty) much of this can be reduced through clear communication.
An education program, like ownership mindset, to explain how the management functions within the business work and what the key roles need to be is one important aspect as well as an honest conversation about the owners’ intentions, timelines, and expectations.
Key deliverables should then be a skills matrix, identifying any gaps, a training and development plan, a project timeline, and an agreement document (not necessarily legally binding) that is shared amongst all involved outlining the intentions and timing.
What Happens if You Fail to Prepare a Management Succession Plan?
In a lot of recent studies around employee retention and engagement, the issue of management succession (for example, an employee understanding their career pathway, development and opportunity) is a very important aspect of attracting and retaining key employees. At the same time, if management succession within the business is not handled well, not only could we lose employees we are likely to see the value of the business decrease.
One of the substantial issues and risks for SMEs is owner dependency – reliance of the owner/s for management, sales, decision making and responsibility within the business. A management succession plan should identify and mitigate this risk by reducing reliance on key people (including founders)
How Does a Management Succession Plan Fit into an Overall Succession Plan?
A succession plan needs to cover both management and ownership succession.
If we only address ownership succession issues then the business will struggle to operate and continue without the owner, this also makes it very unattractive to an external buyer. Ideally, both plans should be implemented and communicated to ensure the smoothest possible transition of ownership and handover of control and management.
Both plans should be coordinated in terms of timing and overall exit strategy to ensure the best possible outcomes for all stakeholders.
What Are Some Good Examples of Management Succession?
There are many high-profile cases of business succession; John Lewis and Richer Sounds are both good examples. We have several clients who have managed this well – both family businesses handing over to the next generation (or in one case skipping a generation and handing over to grandchildren) and privately owned professional services firms who have used employee ownership to manage both ownership and management succession at the same time.
In all cases, three things stand out:
- Time – good strategy takes time
- Communication – early, open and honest and ongoing
- Gradual – handover of roles, responsibilities over an extended period produces better outcomes
Decide to look at succession planning soon.
By Kevin Harrington, Partner, Succession Plus UK