what is the meaning of succession planning in business

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Succession Planning: What the Research Says

• Eben Harrell

While every organization inevitably must replace its CEO, most firms are ill-prepared for succession. In this article, HBR senior editor Eben Harrell reviews the most salient studies of succession planning and offers context from the experts. Some key takeaways:

• Though turnover among CEOs is rising, only 54% of boards are grooming a specific successor, and 39% have no viable internal candidate. The consequences of poor planning are serious: Companies that scramble to find replacements forgo an average of $1.8 billion in shareholder value.
• Grooming leaders takes years but pays off: Chief executives who have gone through executive development at “CEO factories” like GE deliver superior operating performance. But directors need to get more involved. The majority don’t understand the capabilities of the executives below the CEO, and only about a quarter participate in their evaluations.
• The trend toward external hires is growing, and outsiders command higher median pay. But studies suggest that on the whole, insider CEOs deliver better returns.
• More researchers are studying the traits of the ideal CEO. So far they’re finding that younger CEOs outperform, that execution matters more than interpersonal strengths, and that a military background makes leaders more honest, but this line of inquiry is in its early days, and the jury is still out.

Most organizations aren’t prepared.

All CEOs will inevitably leave office, yet research has long shown that most organizations are ill-prepared to replace them. In this article, we review the most salient studies of succession planning and offer context from experts on the process of picking new leaders for organizations.

• Eben Harrell is a senior editor at Harvard Business Review. EbenHarrell

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Your Business Needs a Succession Plan: Here Are the Basics

Succession planning may be the single-most neglected aspect of business ownership. Don’t make the same mistake that so many others do. Instead, get started with your plans today.

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In Part 1 and Part 2 of this series on selling your business, we’ve examined the questions facing owners who entered 2020 ready to make their move, breaking down how the COVID-19 pandemic changes the situation and how to increase a business’s value if you decide to delay bringing it to market. There’s another way forward, though — standing pat and not selling.

Tax Wrinkles for Work-at-Home Employees During COVID-19

If you were a business owner who was considering putting your company on the market but decided not to sell (or at least not anytime soon), what steps should be you taking now? The goals are to ensure preservation of the current business, as well as provide for an orderly and stable future transition when the proper time to sell arrives. Accordingly, the first and most critical step is setting a goal to implement both a business continuity plan and a business succession plan. The sooner, the better.

We have all learned a valuable lesson from the COVID-19 pandemic: A significant business disruption can happen with very little advance notice, and not being prepared can be disastrous.

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Developing a Business Continuity Plan

Armed now with the knowledge of how the pandemic impacted your own business operations, you can now plan. Did the travel restrictions impair your sales efforts? Did the substantial increase in employees working remotely overburden your IT infrastructure? Did your vendors and suppliers make requests that you couldn’t respond to effectively?

The goal of a business continuity plan is to identify that which is essential and that which is not and to place the business in a position where it can continue to operate during a disruption. Ideally, the business continuity plan would include:

• A comprehensive strategy for keeping the business operating day-to-day.
• An assessment of essential and non-essential operations and processes.
• An analysis of key employees/positions and how each would be impacted by a disruption and, specifically, the potential loss or unavailability of key employees.
• A review of facilities and analysis of how the business operates if one or more location becomes unavailable.
• A plan to protect, secure, back up and replicate, if necessary, critical data systems, infrastructure and applications.

These are only a few of the many issues for consideration when developing a business continuity plan. Many of the details are industry-specific, and you need to work with your key employees and advisers to address the challenges likely to face your particular industry. Consider meeting and discussing with your vendors, customers and suppliers the challenges that were presented by the COVID-19 restrictions. Get their views on how things could have been handled more effectively. Information is key to developing a plan that will actually work.

There’s Never Been a Better Time for Business Owners to Make a Move

Once you develop a plan, revisit it regularly and adjust and update it so that it is always ready to go when you need it. If, for example, your CFO retires, you will need to consider how the loss of that person and their particular knowledge will affect the plan. Will their successor have the wealth of historical knowledge necessary to obtain and transfer information in a timely manner? If not, consider how you address the gap. Every organization seems to have those “go-to” people who have been there forever and without whom things run much less smoothly. Consider how the plan is impacted if those individuals are unavailable. The key takeaway is that the plan needs to grow and change with the business in order to work effectively when the disruption happens.

Developing a Business Succession Plan

No matter what your plans are for the future of the business, eventually, you will transition it to someone. Perhaps that someone is a purchaser, or perhaps you will transition to your family, key employees or some combination of the two groups. The point is that transition will eventually be unavoidable. Ideally, you get to control and be part of the process. That, however, is not always the case. Unexpected death of an owner, key executive or employee can cripple a business if no successor has been identified and there is no plan for transitioning management.

Every business succession plan looks different. Not every business owner wants to transition their business in the same way or at the same time. Some owners want to exit completely at a certain date. Others want to stay involved to a lesser degree over time but never exit entirely. These issues, as well as many others, must be considered. The plan should be designed to:

• Address anticipated timing.
• Identify one or more successor.
• Address the value of the business.
• Provide for implementation of the plan.
• Discuss communication with employees, customers and family.
• Include tax planning.
• Provide for contingencies.

In my long career as a business lawyer, I have observed that succession planning is the single-most neglected aspect of business ownership. Maybe it’s human nature to think that we’ll always have time to deal with it later. The truth is, if you don’t get around to it and the unexpected occurs, the impact on your family and employees could be devastating. Also, we see many executive job candidates asking about a company’s transition planning before they are ready to commit to working there. Lack of a transition plan can therefore have a negative impact on attracting and retaining talented employees and executives.

The best way to approach the process, in my experience, is by dedicating a year to the effort. Spend three or four months discussing the process with your family, executive employees, your bank and other key stakeholders. Get your lawyer and accountant or other tax adviser involved from the outset. Develop and refine the plan over the next few months, and implement it over the last three or four months. One year is what you need. Negotiate the fees with your professional advisers in advance and get a budget for each phase. When it’s done, you’ll thank yourself, and your business will be better off for having gone through the process.

Final thoughts

As touched on in this article and the other parts of this series, the COVID-19 pandemic was and remains a major disruption that couldn’t have been foreseen by most business owners at the start of 2020. The confusion of the early days, however, is beginning to clear. For owners who were planning for a transition, there is path forward — be it bringing the business to a changed market, delaying the decision or staying put for a time.

No matter the decision, proper preparation and organization will make it easier.

Help! I Can’t Afford to Sell My Business

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA .

Patricia Farrell is a corporate law attorney in Pittsburgh. With a primary practice in business services, she regularly represents privately held businesses in mergers, acquisitions, divestitures and other major transactions, both in the United States and in Europe, Asia and Australia. She also has a broad corporate practice where she assists with corporate governance as well as succession planning for business owners and a variety of other day-to-day business issues.

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What is succession planning? A key talent strategy for business

Succession planning helps businesses cultivate a pool of talented workers who are poised to take over leadership roles as the business grows, changes and develops.

What is succession planning?

Succession planning is a talent management process that builds a pool of trained workers who are ready to fill key roles when leaders and other key employees step down. Organizations with succession planning programs in place foster a talent-oriented culture by recruiting skilled workers and top talent. Once recruited, businesses focus on developing these workers’ skills, expertise and knowledge so they are prepared to take on leadership roles in the event of organizational growth, talent loss or management turnover.

A change in leadership can be sparked by more than a resignation — an employee might retire, get fired, get sick, take leave or quit without notice. Succession planning ensures there’s a strategy in place for someone to step in, get promoted and take over that person’s duties without a loss in productivity and morale.

However, the goal of succession planning isn’t to prepare one person to take over a specific role. That’s called replacement planning, which is different. Succession planning relies on a large pool of talented workers ranging from entry-level to senior leadership who are being prepared for key roles. These employees have the right skills, energy and leadership qualities that will benefit the company across a spectrum of roles, departments and seniority levels. Replacement planning is linear — you are preparing a worker to take over or replace specific senior management positions; succession planning is about cultivating a flexible, large selection of talent.

Succession planning process

The process of succession planning is unique to each company, but there are general guidelines that you can follow to help your business create a successful succession strategy.

• Identify the most important roles in the organization that would need to be filled quickly if that employee exits the organization.
• Define the main responsibilities, competencies and requirements for each job, including what personality traits best suit the role.
• Use the established criteria to assess candidates and to determine who has the potential to grow into a leadership position.
• Establish a talent pool of workers who are qualified to eventually fill key roles in the organization.
• Develop these employees through training and valuable work experience so they’re ready to take over leadership positions when the time comes.

Succession planning template

It’s important to create a template that outlines what succession planning will look like in your company. The goal is to create as seamless of a transition as possible and to avoid hurting morale and productivity. The template should reflect the specifics of your succession planning — whether you’re a business owner preparing for the day you pass the company onto someone else or an executive planning your future exit strategy. Some companies even publish their own templates online, which can help offer guidance if you’re struggling to create a template for your business.

Your template should at least include the following:

• All relevant company information including the date the succession plan was developed.
• A table of contents that can point readers to different sections of the succession plan.
• An overview of the succession plan, what the organization wants to achieve with the strategy and any details
• Any leadership or non-leadership roles that are vital to business operations or have a large impact on the company.
• A list of roles that you can predict will be open within the next few years due to retirement. If you’re in an industry or area with high competition, consider potential losses from poaching.
• A list of all potential candidates that are fit for future leadership or high-potential positions.
• Training programs and career development efforts to train high-performing workers.
• Any legal documents that need to be considered, including contracts, partnerships and other agreements.

Succession planning best practices

Succession planning is a great way to build your next generation of IT leaders . Your succession plan should take into consideration current and future business challenges, critical skills, future skills, all core and technical competencies and a strong plan for career development. Succession planning involves multiple steps but there are four core objectives that you’ll need to build a strong succession planning strategy .

• Identify qualified candidates within the organization who will be able to take on more responsibility in the future.
• Once you identify your top candidates, focus on developing their skills and expertise through training
• Get leadership engaged in developing future talent and supporting those with high potential in the organization.
• Create a database of workers so staffing decisions can be made quickly when key positions open.

For more on succession planning best practices, see “ How to build the next generation of IT leaders ” and “ CIO succession planning in the digital age .”

Who benefits from succession planning?

Succession planning is as important in small organizations as it is in large organizations. For smaller companies, with less resources, smaller budgets and fewer employees, succession planning helps avoid disruptions in workflow. This is especially true for owner-operated businesses once the owner steps down or sells the company. In large organizations, succession planning is important because there’s a lot at stake and an unexpected loss can leave the business in chaos. With a complex organizational structure, there needs to be enough talent to go around so leadership and management changes can be addressed quickly.

Succession planning examples

At Apple, Steve Jobs founded Apple University to support succession planning by educating Apple employees and leaders to understand how he built the business and how to think like Steve Jobs. It’s highly secretive, but it’s designed to help keep consistency in the organization. Apple also demonstrated a commitment to succession planning when Tim Cook seamlessly took over as CEO after Jobs stepped down. Cook has since indicated that succession planning is still an important strategy for the organization, with a “deep bench” of successors poised to take over in the future.  

IBM demonstrated its succession planning strategy in 2011, when Samuel J. Palmisano stepped down. The company’s first female CEO, Virginia Rometty, was ready to take over in his place. Rometty worked for IBM for over 30 years, so she already had a deep knowledge of the company culture and business operations. It allowed for an effortless transition, so the company could continue working to its full potential despite the organizational changes.

The future of succession planning

A key component of succession planning is talent development. For key players that are identified as potential candidates for succession planning, it will be important to figure out how to keep them engaged and motivated. Currently, it’s millennials who are coming up in the workforce and are largely the target of succession planning.

Millennials comprise 38 percent of the workforce, according to Gallup, and they’re poised to take over leadership roles as baby boomers start to retire. The report points out that if organizations fail to meet millennial’s needs, they’re more likely to “function as free agents, always looking for fresh opportunities.” The survey found that 60 percent of millennials in the U.S. workforce say they’re “currently looking for a new job opportunity.”

According to a report from Gallup, employees used to care about salary, satisfaction, having a good boss, annual reviews, their weaknesses and their job. But today, employees are focused more on having a purpose, developing their skills and working with mentors. Employees are also less focused on annual reviews, and more concerned with maintaining ongoing discussions about performance throughout the year. These workers are also interested in cultivating their strengths and finding a healthy work-life balance.

The good news is that millennials are eager to learn and grow under “high-quality management.” They want to feel interested in their work, with a sense of purpose, and they want to know they have opportunities to advance. Understanding your employees will make it easier to develop their talent in the modern workplace, so they’re prepared as future leaders.

Succession planning tools and software

Succession planning is a skill that requires business acumen, communication skills, leadership skills and other hard and soft skills. But there are tools and software designed to help make the process of succession planning easier on an organization. Talent management is critical to succession planning, so tools that help manage employee training and progress will give you more insight into how talent develops in the organization. Here are some popular succession planning tools and software:

• Talent Guard
• MentorcliQ Employee Mentoring
• Workday Succession
• HRToolBench
• Bullseye Engagement Performance Management System
• EmployeeConnect

Succession planning training and certification

Succession planning requires collaboration, buy-in and effort from leadership in the organization. It also requires working across departments to understand and fill talent gaps, and then communicating those to HR and recruiters. If you want to get a better understanding of succession planning and how it will fit into your business, here are some training and certification programs you can choose from:

• EDUCBA — Succession planning video course
• ASPE Training — Succession planning boot camp
• Human Capital Institute — Leadership Development & Succession Strategist (LDSS) certification
• Institute of Organization Development — Leadership Development Certification program (LDCP)
• MRA — Succession planning training course
• The American College — Business succession planning certificate

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This article is going to explain what succession planning is and how it can be applied to your business.

After reading this guide, you will have a strong idea of creating or improving your succession planning process and the best practices involved.

What is succession planning?

Business succession planning, benefits of succession planning, succession planning process, succession planning best practices, faq about succession planning.

• Succession planning template

Succession planning is the process whereby you identify new leaders and develop them to take over the role of the incumbent.

For businesses to thrive, it needs to avoid moments of crisis and lack of leadership.

At some point, succession planning will help with such a situation by preparing a candidate for a planned or emergency replacement. This could be because of retirement, a new opportunity, or in the event of death.

Succession planning is your safety net to ensure that business operations can remain smooth. A robust process will help you identify key individuals who could fill leadership positions.

In the best-case scenario, you will be given advance notice when someone is going to leave. A succession plan prepares you for the worst-case scenario and no notice.

At the same time, an effective succession planning strategy will avoid any questions of succession where leadership positions are concerned.

In the monarchy, this is often resolved through the order of succession. A well-understood model that passes the office to the nearest descendant. This model is also common with family-run businesses that intend to leave the business to their children or next of kin.

In business, succession planning plays a vital role in identifying candidates to take on more challenging roles. When an important postholder departs they leave behind a void that can disrupt the company.

No matter the size of your business, a succession plan is a key to having a smooth transition.

Large companies such as Pepsi , Microsoft , and General Electric have well-known succession plans for executive talent.

For large corporations, it will typically fall to the CEO and the board of directors to oversee the succession plans. They will evaluate employees to identify leadership qualities and provide training for those in consideration.

Often the succession plan will look internally for candidates to take over positions. However, some companies may look to external candidates and may even employ the use of headhunters.

Smaller-scale companies may not need a comprehensive succession plan compared to large businesses. However, there will still be a need to identify someone to take over in the event of an emergency.

Therefore it is wise to train potential successors so they are prepared to step up if the need arises.

Types of succession plans

There are two types of succession plans that should be considered. This will give your business something to fall back on in the case of an emergency.

1. Long-term succession plan

The first type of succession plan you should consider is your long-term succession plan. This is the plan that you will more or less stick to as a standard for key positions.

A succession plan of this nature can be reevaluated and changed as the company grows. For large companies, this would be the plan that outlines the details of succession for all key positions.

2. Emergency succession plan

A secondary emergency succession plan can also be created, where appropriate, to be deployed in the event of an emergency.

This type of plan may involve more temporary measures but is intended to keep operations running smoothly.

This could see other senior members of staff take on extra responsibilities while a replacement is sought.

Many small and medium businesses do not have a succession plan. Of those that do, some of them have only informal plans.

This can be a risk for your business as there could be unforeseen incidents that could occur such as death. It is worth creating a formal, written succession plan that is developed and easily accessible.

Here are some of the benefits for businesses of any size to create a succession plan:

1. Candidates ready to start

When an upcoming promotion, retirement, or departure is approaching you will have the next generation of leaders ready to go.

Thanks to your succession plan the replacement will already have the skills required to take over the role.

2. Encourages managers to develop junior employees

Your succession plan can help your managers to start developing lower-level employees.

The plan helps to define clear progression routes through the company so managers can share appropriate training and information with junior staff.

Managers will also be able to start training their replacement when promotions are approaching.

3. It leads to higher job satisfaction

Employees report higher job satisfaction when there is a succession plan at their company. This is because it helps to define routes to progressions and lowers job insecurity.

A succession plan can help employees understand what they need to do to achieve a promotion. It can help with goal-setting and giving employees a sense of direction at work.

4. Helps to track progress

Succession planning can help your managers to track employee progress through performance reviews.

Internal opportunities can also be quickly filled with knowledgeable employees who have been upskilled and crossed trained.

5. Keeps shareholders confident

Whenever a high-ranking postholder leaves the organization it can leave shareholders feeling uneasy.

In some cases, they may look to sell their shares. A good succession plan can help keep investors on board.

For positions like CEO or CFO, the board may have had some input into the choice of successor. This will give the shareholders confidence in the company and the new postholder.

6. Cultivate and maintain company loyalty

Having a strong culture of promoting from within can lead to increased company loyalty.

You can attract talented employees who will stay with you for a long time. This helps them to have a strong understanding of the businesses, morals, and expectations.

Employees are more likely to stick around for the long term if there are defined advancement opportunities.

Instead of an informal plan, it’s a good idea to make a comprehensive document that outlines how succession should work.

Small and family businesses may only need a limited plan that outlines succession for a single person.

Larger corporations may need a comprehensive document that starts with the hiring process and works its way through the ranks and details different leadership positions.

The fundamentals of your succession plan will remain the same which is what we’re going to look at now.

It’s also worth pointing out that this document can be revised and amended whenever it is necessary.

1. Determine the scope

You will need to figure out how comprehensive you want your succession planning to be.

A small business might only need to find a replacement for ownership. Medium and large businesses may only want to consider the succession plan for their C-suite of employees.

It may also be the case you want a succession plan that covers every eventuality from store manager to distribution to CEO.

Ask yourself the following questions to decide what is best for your business:

• Do you only need a plan that covers senior management?
• Do you want a succession plan that covers the entire organization?
• Are there any vulnerabilities in your business? Such as having a division with a higher amount of employees nearing retirement. Are you prepared for that?
• Should performance reviews be used to help identify potential candidates?
• Should the talent acquisition process be a part of your succession plan?

It’s important to understand what your specific needs are as well as the needs of the business.

The size and type of your business can help to inform some of your decisions but ultimately every business will be different.

2. Identify key positions and skills

First, you have to identify the key roles in your organization that will be good to secure.

It could be the CEO, CFO, CCO, CHRO, and different heads of departments.

Second, you might have some specific specialists that are unique to the industry or your business, e.g. it might be some highly skilled engineer, programmer, scientist, etc.

Consider the following questions to identify key positions and the skills needed for that post:

• How does this position impact the company?
• If this position became vacant, how would that affect the company?
• Are there some big risks if this position became vacant?
• What skills (both hard and soft) are needed for this specific role?

The objective is to figure out how crucial the position is. If the company would be severely affected by a vacated position then this is one that should be considered within your succession plan.

You will also need to understand what specific attributes are needed for the role. That way you can build your training and development around nurturing those key skills.

3. Identify potential candidates

Perhaps the most crucial stage is finding the employees that might be suited to a tougher challenge .

You could ask the current postholder for help determining who could step up in their absence.

It’s also worth considering that the right person for the job isn’t necessarily the next in line. Candidates could be sidestepped in the role or there could be other promising candidates in the business.

You may wish to make hiring a part of the plan and therefore can use interviews to vet potential recruits for career prospects.

Try to answer the next questions:

• Who are the strongest candidates to step into this role?
• What skills do they possess that could benefit their new office?
• What skills are the candidates lacking?
• Does this person have the appetite for more responsibility?
• What training will they need to succeed?

It’s important to identify people who want more responsibility. Your top choice maybe someone who is happy in their current role and not looking to change.

This is something that can be gauged during annual reviews or in meetings about their professional goals.

4. Speak to the candidates

It would be wise to speak with the people you are considering.

This will give you a clear answer if they would be interested in the role.

Don’t make any promises but explain that they are being considered for leadership.

Explain that nothing is guaranteed as there are plenty of moving factors to consider. This includes the current postholder, the company, and the candidates.

However, you can gauge their interest and it may help to encourage high-performing individuals to remain loyal to the company.

5. Work on professional development

Leadership development is worth investing in particularly for employees you have identified for succession into key roles.

There are a variety of ways to develop potential successors and help them to develop leadership skills.

You can create a leadership development plan to ensure candidates have the right skills and are a good fit for leading positions. Employees being groomed for leadership roles can be developed in several ways .

You need to test your employees to make sure they can meet the demands of the increased responsibilities.

Some of the ways this can be achieved are through:

Connect the candidates with business leaders in your company. They can help to develop the skills of succession candidates and even share knowledge that might not be immediately obvious.

You can send prospects on courses to help develop their skills. These could be in-house courses or ones run through independent third parties.

Task forces

Task forces and project management is a great way to test your candidates. This will give them the opportunity to lead a team and test how well they cope under pressure.

When you think about development consider the following questions:

• What is the best way to upskill?
• What resources are required and available?
• Are there some additional skills needed?

The focus should be on improving a candidate’s interpersonal abilities and communication skills that are important in a leading position.

You will also want to give them the opportunity to learn and develop the necessary skills required to do the specific job.

6. Trial and error

There should be ample opportunity to give your succession plan a trial run with the candidates you are considering. For example, if the postholder is away on holiday or off sick for an extended period you can use this as an opportunity to try someone in the role.

The benefit here is twofold, the candidate will get a feel for the position and appreciate the opportunity. While you can assess whether they are the right candidate for the position.

Note: Such tests can affect the team so pay close attention to this . This is especially true for external candidates and people from different teams. Not everybody will like it, unless the candidate is a strong leader from the inside of the team.

This is what you need to consider:

• How does the employee interact with others?
• Have they kept the department running smoothly?
• How do they handle issues that arise?
• How do they react to stressful situations and conflicts?
• How much help do they need in the role?

You want to see them step up and take control of the position. This will help identify if there is any specific training they need to take the role full-time.

You can gauge whether someone is wrong for the position. This may come down to their interpersonal skills or ability to deal with new challenges.

7. Refine and redefine

Your succession plan is something that can be developed over time.

It may be that what was working years ago isn’t quite the same now.

You may need to adjust the succession plan to adapt to a changing business landscape. As the business grows you may need to redefine what is included in your succession plan.

It would be prudent to start with the most important roles in the business. After all, you can’t totally predict when a key position will become vacant.

Once you have those key positions locked down you can start to expand the scope of your succession plan.

1. Start from key roles

You should start with the most important roles first.

Which of the positions will have the greatest effect on your business if the postholder doesn’t turn up tomorrow?

Roles at an executive level are going to be the most disruptive ones. From there work out the specific skills and knowledge required for the role. This will help you to create your plan and identify potential successors.

Once the most pressing roles are covered you can look at what other roles are important to include.

2. Talk to your employees

Your succession plan will affect people and may make some people feel nervous.

It’s important to explain the scope of the succession plan and why certain roles are included in it.

You may only look to include executive positions or your plan may include managers and supervisory staff as well.

By giving a clearly defined scope you can avoid members of staff second-guessing their position.

3. Collaboration between management and HR

This is a process that should be driven by the business leaders with support from HR where necessary.

It is not strictly an HR process and therefore senior leadership should be communicated with regarding the succession plan.

Gain insights, input, and information from across the senior positions to help the succession plan run smoothly. Interviewing the post holders about the wants and needs of their job can provide crucial information.

4. Forecast your business needs

You should have an emergency succession plan in place that can deal with the untimely vacancy of a position.

Alongside this, you can create a detailed forecast and a longer-term plan. This is necessary to address things like upcoming retirement and promotions.

You will also need to consider how quickly the business can mobilize to fill this position.

A strong succession plan will understand how it will impact the business in 6 months, 1 year, and 5 years.

5. Create a pipeline of talent

Create a pipeline of talent so you have individuals ready to take up new challenges as they arrive.

A pipeline of this kind is essential for finding a talented successor but it’s also a good idea to help fill newly created positions. New recruits can be included in your pipeline of talent.

You can learn about this in our talent acquisition guide.

Even if you don’t have any open positions currently, you can still start cultivating a pool of talented individuals.

6. Annual talent reviews

Your succession plan is something that should be continually developed.

This includes reviewing the candidates on an annual basis or more. People may have moved on or into new positions within your company. Promising candidates may no longer be performing at the standard you would like.

Take a look at your succession plan every year and adapt and change things where it is necessary.

7. Build the learning culture inside your organization

It will help you nurture and grow potential candidates as well as new talents.

When you have identified the individuals that are being considered for senior positions you will need to develop their skills.

You can work with the candidates and they can lead their own individual development plan.

This ensures that their progress is actively monitored and they can take ownership of the process.

Managers should be on hand to provide guidance, resources, and provide timely reviews.

Why is succession planning important?

Succession plans make your business disaster-proof. They provide a concrete plan for filling key roles and help to avoid times of uncertainty. It can be reassuring for investors to know that there is a carefully considered plan in place.

How to do succession planning?

Succession planning should be conducted by business leaders with support from the HR teams. All affected individuals need to be involved in the process. Start with the end goal to identify what you need to achieve. Each business will have different needs so consider which positions will have the biggest effect on operations.

What is business succession planning?

Business succession planning is the process whereby you identify candidates to be groomed for senior positions. Specifically, when the incumbent leaves the role, this could be for a promotion, retirement, or an untimely death. Your business succession plan is in place to facilitate a transfer of power and keep your business sailing smoothly.

What is the correct order of the succession planning process?

• Identify which positions need to be included
• What specific skills are required for those roles?
• Identify people who could be a good fit
• Start grooming them for succession
• Review your succession plan and candidates annually

Succession Planning template

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How to Create a Business Succession Plan

For many small business owners, maintaining positive cash flow and a stable balance sheet can be an ongoing battle that consumes virtually all of their time. Even retirement often seems like a distant speck on the horizon, let alone plans to hand over the business. However, establishing a sound business succession plan is beneficial for most business owners and can be absolutely necessary for some.

For business owners that are at or near retirement, the issue of succession cannot be ignored. In this article, we will take you through the steps you'll want to take to create a successful succession plan.

Picking a Successor Isn't Easy

Many factors determine whether a succession plan is necessary, and sometimes the logical and easy choice will be to sell the business lock, stock, and barrel simply. However, many owners prefer the thought of their businesses continuing on even after they're gone.

Choosing a successor can be as easy as appointing a family member or assistant to take the owner's place. However, there may be several partners or family members from which the owner will have to choose — each with a number of strengths and weaknesses to be considered. In this case, a lasting resentment by those who were not chosen may happen, regardless of what choice is ultimately made. Partners who do not need or want a successor may simply sell their portion of the business to the other partners of the business in a buy-sell agreement .

How Much Is the Business Worth?

When business owners decide to cash-out (or if death makes the decision for them), a set dollar value for the business needs to be determined, or at least the exiting share of it. This can be done either through an appraisal by a certified public accountant (CPA) or by an arbitrary agreement between all partners involved. If the portion of the company consists solely of shares of publicly-traded stock, then the valuation of the owner's interest will be determined by the stock's current market value.

Life Insurance: The Standard Transfer Vehicle

Once a set dollar value has been determined, life insurance is purchased on all partners in the business. In the event that a partner passes on before ending his relationship with their partners, the death benefit proceeds will then be used to buy out the deceased partner's share of the business and distribute it equally among the remaining partners.

There are two basic arrangements used for this. They are known as "cross-purchase agreements" and "entity-purchase agreements." While both ultimately serve the same purpose, they are used in different situations.

Cross-Purchase Agreements

These agreements are structured so that each partner buys and owns a policy on each of the other partners in the business. Each partner functions as both owner and beneficiary on the same policy, with each other partner being the insured. Therefore, when one partner dies, the face value of each policy on the deceased partner is paid out to the remaining partners, who will then use the policy proceeds to buy the deceased partner's share of the business at a previously agreed-upon price.

As an example, imagine that there are three partners who each own equal shares of a business worth $3 million, so each partner's share is valued at $1 million. The partners want to ensure that the business is passed on smoothly if one of them dies, so they enter into a cross-purchase agreement. The agreement requires that each partner take out a $500,000 policy on each of the other two partners. This way, when one of the partners dies, the other two partners will each be paid $500,000, which they must use to buy out the deceased partner's share of the business.

Entity-Purchase Agreements

The obvious limitation here is that, for a business with a large number of partners (five to ten partners or more), it becomes impractical for each partner to maintain separate policies on each of the others. There can also be substantial inequity between partners in terms of underwriting and, as a result, the cost of each policy.

There can even be problems when there are only two partners. Let's say one partner is 35 years old, and the other is 60 years old — there will be a huge disparity between the respective costs of the policies. In this instance, an entity-purchase agreement is often used instead.

The entity-purchase arrangement is much less complicated. In this type of agreement, the business itself purchases a single policy on each partner and becomes both the policy owner and beneficiary. Upon the death of any partner or owner, the business will use the policy proceeds to purchase the deceased person's share of the business accordingly. The cost of each policy is generally deductible for the business, and the business also "eats" all costs and underwrites the equity between partners.

3 Reasons to Have a Business Succession Plan

Creating and implementing a sound succession plan will provide several benefits to owners and partners:

• It ensures an agreeable price for a partner's share of the business and eliminates the need for valuation upon death because the insured agreed to the price beforehand.
• The policy benefits will be immediately available to pay for the deceased's share of the business, with no liquidity or time constraints. This effectively prevents the possibility of an external takeover due to cash flow problems or the need to sell the business or other assets to cover the cost of the deceased's interest.
• A succession plan can greatly help in establishing a timely settlement of the deceased's estate .

The Bottom Line

Proper business succession planning requires careful preparation. Business owners seeking a smooth and equitable transition of their interests should seek a competent, experienced advisor to assist them in this business decision.

American Bar Association. " Forms of Stock Purchase Agreements ," Page 1.

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Business Succession Planning: A Step-by-Step Guide

Business succession planning is a valuable tool for both small businesses and growing enterprises. In small businesses, succession planning means effectively managing changes in ownership or leadership. In larger organizations, it that can help to avoid potential talent gaps that have a detrimental effect on the company. The right strategy can help you plan ahead so that you can transfer knowledge and retain employees in key roles. And this is a top priority in these uncertain, post-pandemic times.

With that in mind, we have created a step-by-step guide to help you design and implement a plan that sets your business up for long-term success . We will take a look at the benefits of succession planning in HR and break down the succession planning process to help you understand everything that’s involved.

Table of Contents

What Is a Succession Plan?

So, what is the definition of succession planning? How can you apply it to your business?

Business succession planning is a process that helps you prepare your company for the future. Essentially, it’s about creating a strategy and process for identifying potential future leaders and developing their skills so that they are ready to take on a new role when one of your key employees leaves the company.

Through careful planning, communication, training, and feedback, you can create a successful change management strategy that prepares you for potential transitions in your business. This helps you avoid key player talent gaps. It also helps you proactively develop your inclusive leaders of the future.

Despite its valuable role in business planning, according to a survey conducted by SHRM last year, only 44% of HR professionals claim that their organization has a succession plan in place. What’s more, only 21% of those that do have a plan in place have created a formal succession management plan.

Do you have a detailed succession plan in place? If not, then you’ve come to the right place.

Why is Business Succession Planning Important?

According to the 2021 Global Leadership Forecast , companies around the world are facing a leadership crisis. In fact, only 11% of surveyed organizations reported that they have a “strong” or “very strong” leadership bench, the lowest rating in the past 10 years (it has been in decline since 2011’s reported 18%). This drop has been attributed to a decline in leadership development and transition training in organizations.

Understandable given the distractions the world has had over the past couple of years.

Nonetheless, this figure shows just how important it is for organizations to work on their succession management strategies. This is the most effective way to ensure that the leaders of the future have the right skills and experience to guide them to success . And this is what business succession planning is all about.

By preparing strong leaders for the future, you can help your organization reach its long-term goals, reduce employee turnover , and build a stronger and more resilient business that’s ready to thrive.

Benefits of Business Succession Planning

In case you’re still not convinced, let’s take a look at some of the specific benefits of business succession planning in a bit more detail.

• Identifying and developing your existing employees for future leadership roles helps you to promote from within . Aside from reducing turnover and hiring expenses , this also helps you ensure your future leaders have the right organizational knowledge and internal relationships , something which external recruits will lack.
• Promoting the development of your existing employees shows them that you are willing to invest in their future . This can be a great morale boost that motivates employees to stay at your company. This helps you stay competitive and attract top talent to your business.
• A well-designed succession plan helps you formalize training for both present and future leaders. It keeps your business moving forward and helps you retain your top performers .
• Business succession planning is also an effective tool for mitigating the risks of organizational change . This helps you avoid any potential talent gaps when someone leaves your company. It also helps you pass on valuable institutional knowledge to future leaders before it’s too late.

What is Succession Planning in HR?

Succession planning in HR consists is a vital part of talent management. It’s all about your role as an HR professional in identifying key roles and positions that may need filling in the future and finding and developing internal candidates who may have the right skills and experience to fill them. The right strategy can help you retain staff, cut recruitment costs and better manage your internal recruitment processes .

HR succession planning is the process of identifying, selecting and developing employees who could potentially become key players with the right development. This helps you prepare for potential organizational changes so that you have skilled and engaged employees waiting to fill key leadership roles when the time comes.

As an HR professional, you play a significant role in preparing and facilitating your organization’s succession management strategy. However, for your succession planning in HR strategy to succeed, it’s equally important to get the support of senior management so that your plan is as effective as possible and aligned with your organizational goals .

Talent Management and Succession Planning: Employee Buy-in

Business succession planning is also about managing your existing talent so that you are able to retain as much institutional knowledge and experience as possible. This means that, aside from working with senior management, you also need to rely on the feedback of your employees.

What do we mean by this?

Essentially, it’s all good and well managing and developing your existing talent, but they need to be on board with your succession plan and have a genuine interest in remaining at your company and developing their skills. Otherwise, the time and money you invest in preparing them for future leadership positions will be wasted.

Make sure the potential succession candidates you select are:

• Interested in learning new skills
• Comfortable with change
• Motivated and engaged
• Able to adapt to uncertainty and new working environments
• Willing to take on more responsibilities
• Up for a challenge

The Business Succession Planning Process in 5 Steps

Now that we’ve discussed what business succession planning is, let’s take a look at what you need to include in your succession planning process.

Make sure your succession planning framework includes the following 5 key stages.

Define & Align Your Goals

The first step is creating a succession leadership plan. This means you need to define your goals and align them with your business. You may need to meet with senior leaders for this phase to ensure your goals are aligned with your overall strategy.

You also need to have a clear idea of who you are as a business before creating your succession leadership plan. Once you understand “who” you are, you will be better equipped to identify your potential new leaders.

Finally, to complete your plan, you need to:

• Define the roles, skills, and experience that each successor will require (your succession profiles). Make sure you gather as much feedback on this as possible from your team to help you get a full picture of what you need to include in your succession plan.
• Create a forecast of your company’s needs . Where do you need to be as a company within the next 5 years? How will your organizational structure change over this time? Think about your turnover trends, compensation strategies, who may be due to retire, and training and development plans for the future.
• Update your job descriptions to reflect the information you’ve gathered. Make sure you are clear about your expectations . This will help you define the right candidate profiles for your succession plan.

Create Your Succession Strategy

Defining your goals is one part of your plan, but you also need to create a comprehensive succession planning strategy to make sure you are on the right track – you need a business strategy game plan !

So, what does this mean, exactly?

Put simply, you need to define a series of actions and strategic moves that help you align your succession goals and objectives with your overall HR strategy .

Consider the following:

• Where do you want to be as a business? What roles, positions, skills and experience will you need to succeed?
• Which senior/leadership roles do you need to create a succession plan for?
• Will you take business succession planning into account during performance appraisals in order to identify potential candidates throughout the year?
• Does your business have any specific vulnerabilities that may affect your succession plan? (For example, a high percentage of employees that are due to retire soon)
• Have you considered adjusting your hiring strategy to account for successor roles?

The key here is to be as proactive as possible with your strategy. Anticipate potential gaps in your workforce before they occur.

Identify Potential Candidates

The next step is to evaluate your current workforce in order to identify key positions that may need filling in the future, and key employees that may be suitable replacements. This is where you will implement the succession profiles and job descriptions that you created in the previous step. The more information you include in your profiles and descriptions, the easier it will be to identify the right match within your existing workforce.

Generally speaking, the best candidates will be supportive, proactive, engaged with learning and development, great problem-solvers, adaptable and able to take on more responsibility.

It’s important to be as objective as possible in this stage. You also need to consider that potential candidates may not currently be in leadership roles. It’s all about finding potential. The most effective way to do this is by using succession planning tools and metrics, rather than relying on personal opinions. More on this shortly.

Establish Professional Development Opportunities

As soon as you have your list of potential candidates and you know what skills they need to work on in order to eventually fill the role you have matched them to, it’s time to create a professional development plan to help them get where they need to be.

Which skills does each candidate need to develop? What learning opportunities would help them get the right experience and expand their current skillset? Are there any knowledge gaps that you need to address?

Create a list of the skills each candidate currently has vs. the skills they need to acquire, then work out the best way to offer them suitable opportunities for learning and development. Create individual development plans, offer formal training, consider creating a mentoring or coaching program to support them, and encourage continuous feedback and communication.

Implement Your Plan

The final stage is implementing your business succession plan. This will usually be a gradual transition with multiple short and long-term layers.

The first layer involves officially announcing your succession plan and notifying potential candidates. You then need to roll out your individual development plans and arrange training. Introduce candidates to their mentors, if you are using them, and encourage them to meet regularly. This will show your employees that you support their professional development, and you can see that they have potential.

Most importantly, make sure you collect regular feedback to see how your individual development plans are progressing, and if potential candidates are on track to reach their succession objectives.

Business Succession Planning Best Practices

Here are a few business succession planning best practices to help you create a plan that sets you up for success:

• Formalize your plan . The sooner you create and formalize a detailed succession management plan, the better. Make sure your succession planning process focuses on all key stages. That means not just identifying the roles and skills you need for your future leaders, but also implementing individual development plans to get your workforce where they need to be.
• Make sure your succession planning in HR plan is dynamic . Succession planning is all about change management. Be prepared to adapt to change by constantly updating your plan.
• Collect regular 360-degree feedback . This will help you keep track of your employees’ interests, skills, performance, strengths, weaknesses, and opportunities.
• Promote open communication . This will help you build trust and set clear expectations.
• Consider your entire workforce . Don’t just focus on your managers. Your leaders of the future might be hiding in lower-level positions. Look for potential, not existing skills.

Succession Planning Template

One of the most valuable tools you can use for this strategy is a succession planning template. The right template will help you define key roles within your company and identify suitable replacements. Make sure you include a template in your HR audit checklist (check out this HR audit checklist template if you don’t already have one!)

Here are a few examples of the information you can collect with a succession plan template:

• Current key employees and potential replacements
• Key skills and experience that each position requires
• Candidate training and/or experience level
• The time it would take to onboard a candidate for an existing position
• An overview of upcoming vacancies (for example, key employees that are due to retire)

Succession Planning Tools

In order to create and manage an effective business succession planning strategy, you need to use the right succession planning tools. These are the tools that will help you identify which candidates could potentially be future leaders at your organization. They also help you identify potential succession gaps and map the right candidates to the right positions.

Ideally, you should be using a range of tools to help you get a full picture. Here are a few examples of succession planning assessment tools that will help you with this:

• Personality assessment tools : to help you get a comprehensive picture of your existing culture (e.g. tools for tracking motivation levels)
• Behavioral assessment tools : to help you identify and analyze employee leadership skills and assess how they behave at work (e.g. situational judgment tests)
• Cognitive assessment tools : to evaluate critical thinking and reasoning skills related to performance (e.g. a cognitive aptitude test)
• 360-degree feedback : to gather valuable input from employees and their peers in order to understand their readiness to take on future roles (included in most performance management software solutions)

Succession Planning Software

Finally, once you have designed and implemented your business succession plan, you need to regularly monitor progress. This will help you determine if your plan is working and if potential candidates are on track to reach their succession goals.

And this is where succession planning software can help.

Succession planning software isn’t as daunting as it sounds. In fact, most HRIS systems can provide you with the data you need.

The first thing you need is access to key metrics and KPIs . This includes turnover rates, retention rates, cost-per-hire, time-per-hire, and the rate of planned positions being filled. You also need to evaluate performance metrics to determine if business succession planning candidates that have taken on their new role were ready for it.

Did they achieve the training and experience they needed during the development phase in order to take on their new leadership role? If not, what could you have done better?

By analyzing the right data, you can determine what areas of your business succession planning strategy you need to work on in order to continuously improve the quality of your succession candidates. And by using the right HR software and performance management software you can easily identify talent gaps, make comparisons between employees, and simplify the succession management process.

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Succession Planning 101: What is It and Why Is It Important?

Succession Planning

There comes a time that every business leader must ask themselves a question: "Before leaving my business, how do I go about planning for a successor?" With factors such as generational wealth, future goals, and executive strategies all tied up in your leadership role, you need to know how to prepare for succession. But what is succession planning? And why is it important to know how to prepare for succession? Let's go over the basics.

Understanding Succession Planning

Importance of succession planning, how does succession planning work.

• Determine the most crucial roles in the company. Consider the positions playing a vital part in the business's future success. Who holds the most responsibility in the day-to-day? In a world where folks may be wearing multiple hats, it can be helpful to consider the role and not specific individuals to start. 
• Develop a description of these roles and create a list of expectations for the position. What does the job fully entail? What is everything required of the person in the role?
• Identify the candidates who could best succeed in the role (or roles) based on the description and expectations you determined. Who could seamlessly transition into the position? Who might need a helping hand to get where they need to be to succeed?
• Create a plan to help those candidates get the training and development they need to remain strong candidates. Can a mentor or two take them under their wing? Are there additional responsibilities they can take on to prove their worth?
• Re-examine this succession plan annually and repeat steps 1–4 as necessary. What has changed since the last time the plan was examined? What remains accurate?

The Bottom Line: Succession Planning

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While you might not equate your business exit strategy with a family vacation, it actually helps to think of it like one (metaphorically speaking, of course). You probably wouldn't wait until a.

The Information You Need For Every Type of Business to develop a successful Succession Plan

As a business owner, you may have spent years growing, cultivating and shaping your company to match your strategic vision. It’s your baby, your lifeblood. While moving on or selling it might not be.

Plancorp started with a unique philosophy: Always put your clients’ interests ahead of your own, and you’ll build a successful business. That was in 1983, but the sentiment still drives every decision we make. After 40 years of helping individuals, families and business owners plan for financial independence, our commitment to serving as financial life advocates is stronger than ever. More »

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4 reasons why you can't afford to skip out on succession planning

Understand Yourself Better:

Big 5 Personality Test

Despite your best retention efforts, people in critical roles will inevitably leave. Therefore, succession planning is vital to minimize gaps in leadership positions. But succession planning is more than simply bridging the gap between open roles and leadership positions. In many ways, succession planning is about leadership development to make sure your workforce can reach its fullest potential . And while we know people aren’t born leaders, it’s important to take into account which leaders you’re grooming for executive-level roles. 

Take Apple. In 2011, Steve Jobs stepped down as CEO . Before that, he spent years mentoring and grooming his successor Tim Cook to take over. Cook took on a wide range of operational roles and worked with Jobs directly to gain knowledge specific to the CEO position. Cook also got some hands-on experience, stepping up to lead day-to-day operations at Apple twice when Jobs was on sick leave.

No matter the size of your organization, you can make leadership transitions simple and effective. By using a succession plan to prepare, you’re future-proofing your organizational success. 

Employee development and succession planning go hand-in-hand. At its core, it’s about investing in people that’ll help to lead your business to its full potential. Let’s break down what succession planning is and how it works. We’ll also talk about the benefits of succession planning — and how you can prepare for the future. 

What is succession planning?

First, let’s understand what we mean by succession planning.

A key function of human resource management , succession planning is the process of preparing employees to assume new roles in your organization when they become available. The goal of succession planning is to ensure a smooth transition after key employees go on sabbatical , resign, retire, or pass away.

Think of succession planning like managing a sports team. One of your star players could get injured, traded, or retire at any time. And while you can acquire new talent, it can be time-consuming and expensive. 

A smart alternative is to develop someone on the bench to step up and take on a more significant role in the future. In addition, the player on the bench will likely be a lot more motivated, knowing they're working towards a starting position.

In the workplace, companies operate similarly to their C-suite roles. We work in a multi-generational workforce with many leaders on the cusp of retirement . Organizations use succession planning to help prepare for the future of their organization. A concept that leans on leadership development, succession planning makes sure your people are taken care of. 

When is succession planning necessary?

All organizations should have a succession plan in place. However, there are a few situations where succession planning is especially critical.

• You have a family-owned business. Avoid relying on informal or verbal succession agreements and have a formal succession plan in place.
• You have roles with specialized skills . For example, a technician with decades of experience with special software can be a difficult loss. If your leadership role requires technical skills, make sure you’re building in that cushion to help develop the right person. 
• Senior leaders are a few years away from retirement . It's best to start succession planning as early as possible. But as retirement nears, succession planning becomes urgent. Finding and training someone suitable for the role can take a couple of years.

4 benefits of effective succession planning

Human resources leaders know that succession planning is critical to keeping your organization flourishing for years to come. While it requires a significant time investment upfront, the payoff is huge. When an employee does leave, your organization is not left scrambling to recruit and hire a replacement.

Succession planning is a critical component of a strong talent management strategy. Filling your talent pipeline with trained employees has the following benefits:

Increased employee retention and morale

A promotion policy that prioritizes advancing employees from within can help you maintain top talent. And a transparent succession plan with an emphasis on generational differences can help keep them happy and productive as they know they have a path to growth at your organization.

When done right, succession plans help you walk the talk. Most companies market themselves as great places to work. But succession plans can help you back this up. Internal hiring, leadership development , and transparent succession planning show that companies value employees.

A more diverse portfolio of leaders

We know there’s still a huge gap in the diversity of leaders across businesses in the U.S. For example, in the Fortune 500, only six CEOs are Black , 5% are women , and less than 1% publicly identify as LGBTQ+ . 

It’s important to include diverse perspectives when building teams and organizations. People who embrace inclusive practices tend to be more effective leaders , and their companies experience greater levels of success . 

In order for succession planning to result in a more diverse workforce, leaders must be intentional about how they're sourcing candidates, training and breaking down biases in the workplace, and developing inclusive leadership skills. 

Yet succession planning — when leaders are intent on bringing a culture of belonging to the workplace — can lend itself to increased diversity. How is your leadership team approaching developing diverse leaders? Are you conducting diversity training for all of your leadership team? 

A stronger company culture

When done right, succession planning can help strengthen your company culture. We know that leaders have an incredible influence over employee mindset, behaviors, and actions. When great leaders leave or retire, it’s critical that those filling their shoes are modeling the same set of values. With thoughtful succession planning, organizational leaders can continue that embodiment of your company’s core values . 

A future-proofed workforce

Especially now, change is more prevalent than ever. If we’ve learned anything over these last few years, it’s that change is here to stay. At BetterUp, we talk a lot about the idea of future-mindedness . It’s a concept that we’ve studied and innovated around. To be a future-minded leader means you’re approaching the future with optimism and pragmatism. In order to successfully prepare for the future, your leaders need to consider what’s looming ahead. And while many companies may need to weather rough patches and constant change, future-mindedness can help soften the impact. 

Thanks to succession planning, your company will be better prepared to thrive in changing conditions. As a result, you'll enjoy greater resilience and organizational stability, which fosters market confidence and drives shareholder value.

4 succession planning best practices

Here are a few key things to remember as you build a succession plan for your organization.

Plan in advance

Succession planning is a proactive approach, not a reaction to rumors of a vital team leader leaving. Remember that strong succession plans can involve up to three years of strategic planning and training.

Identify key positions now. Consider who in your current workforce is especially valuable and whose loss would have the most immediate and wide-reaching effects. Then, start developing succession plans for those roles extending beyond the next position in the organizational structure .

Be transparent with employees

Talk to those in your talent pool about their goals and show trust in their potential without promising particular roles. Then, incorporate their training progress into existing performance management by making it part of weekly one-to-one meetings with their manager.

Foster diversity in training

This includes demographic diversity through intentional DEIB initiatives and various skills, talents, and perspectives.

Be open and creative about who you consider for training in your succession plan, as a fresh viewpoint can sometimes be as valuable as an experienced one. Actively engage your leaders in unconscious bias training and work to build inclusive leadership skills. 

Seek expert guidance

When in doubt, lean on your support network. For example, are your leaders working with career coaches to help guide their professional development? Do you have executive coaching options for those on track for the C-suite roles? What sort of professional development offerings do you have in place for your leaders? How are you making sure your managers are building the skills they need to succeed? 

"When making succession planning decisions (and when implementing them), we include multiple team members including our CPA, succession planning and estate planning attorneys, strategic advisors, executives, and coaches," shares Larry Brinker, Jr., Chief Executive Officer at Brinker Group. "It's very important to get the best advisors around you when making these decisions and creating succession plans."

6 common pain points when succession planning

There are plenty of benefits to succession planning. But depending on the scope of the project and the organization's culture and readiness, there might also be challenges. The following obstacles to a formal succession planning program may exist. Consider them when planning (and marketing) the program.

Succession planning takes time 

By nature, succession planning has a long time to value. But many of today's leaders are rewarded chiefly based on short-term accomplishments. For far too many organizations, the board only discusses CEO succession when a transition is looming.

How to overcome it: Start succession planning as soon as possible. You never know when key roles will shift within your organization, so it's best to be prepared for when they do. This means checking in with your leaders regularly on their career plans . It might also mean identifying future leaders by seeing their potential. 

Succession planning can be unsettling

The nature of succession planning can be perceived as a threat to some leaders. For some, succession planning may be seen as a lack of confidence in your current leadership team. And executives may hesitate to raise the issue of succession planning for fear of being perceived as having intentions of resigning. This destabilizing dynamic can have a negative effect on your organization.

How to overcome it: Begin talking about succession planning with your key executives during the onboarding process. Reassure them that you want them to stay long-term, but you have a plan in place if things don't turn out that way.

Any strong and good leader will recognize the importance of succession planning. Work with your coach as your guide, too. 

It's not clear who owns succession planning

In many organizations, no one has been tasked with the responsibility of succession planning. Therefore, no one takes accountability for it. Certain stakeholders might shy away from the idea of owning succession planning as its own program. 

How to overcome it: Sit down with your leadership team and hash out who will be responsible for succession planning within your organization. It could be human resources, people operations , the board of directors, a special committee on the board, or functional leaders.

Resistance to change

Change is hard. And as human beings, we like being comfortable for a reason. So, when change happens, it’s a disruption. There will be people who oppose any new initiative simply because it's new.

How to overcome it: Succession planning can happen incrementally. First, look at your existing hiring and performance management initiatives to sell the value and importance of building an internal bench of talent. Then, slowly introduce the ideas of waning skill sets in the labor market and the existence of internal talent that can easily be developed to fill anticipated gaps.

Management opposition

It can be tough for some managers to think about letting go of their best performers. As a result, they may resist the idea of succession planning.

How to overcome it:

• Be transparent about your goal of keeping talent within the organization
• Set an expectation for managers to develop their team and hold them accountable for recognizing the employees who excel
• Educate managers on all the benefits of succession planning, including how they'll have their choice of internal candidates to choose from when vacancies open up
• Invest in your team, helping them cultivate key management skills , along with the ability to make difficult leadership decisions
• Create opportunities for your leaders to feel supported, engaged, and great at work 

Lack of time

Everyone is short on time. Succession planning is just one more thing to add to the to-do list. And because it's not urgent, it may keep being moved to the back burner.

• Calculate the time your organization spends recruiting, selecting, training, and managing new talent
• Consider how long it takes to assimilate and obtain all the relevant context to perform well
• Compare that with the time it will take to develop your current employees' skill sets

5 steps to creating a succession plan

"The lack of a succession plan can lead key employees and customers to leave, which can hamper the business's ability to grow post-transition," says Sam Brownell , Founder at Stratus Wealth Advisors.

Take the five steps below to get started on your succession planning strategy.

1. Conduct a business review

In this step, consider your organization's business strategy and what it means in terms of the leaders you will need. For example, are you a startup? Do you need to turn the business around, realign to a new business model or sustain or increase your success?

Brownell believes every succession plan should start with an independent valuation by an objective third party that is knowledgeable about your industry.

"Without knowing how much your business is worth, it's hard to put together a successful succession plan. Just as it would be difficult to complete a hike without knowing where the trailhead is, guessing how much your business is worth is not a great way to set up your succession plan for success."  Sam Brownell, Founder at Stratus Wealth Advisors

2. Create a talent needs forecast

Next, outline your organization's objectives so that you can best determine what jobs to train and begin gathering materials and resources. Dig into your talent management system to help forecast. 

Decide how many people you'll require in critical roles, what experience and competencies they must have, and how you will choose them.

3. Take a talent inventory

Uncover essential leadership roles and identify high-potential candidates who could fill them. Avoid focusing solely on C-suite and senior management roles. It's worth looking at lower-level positions as well. Compile data on when vacancies could occur (e.g., retirement, promotions).

4. Conduct a talent review

Next, evaluate your current employees. HR leaders can make educated decisions about filling positions and implementing learning and development programs by assessing employees' skills and knowledge. This will give employees the training they need and nurture a growth-oriented culture.

5. Plan progress reviews

Succession planning isn't a one-and-done exercise. It should be an ongoing process that changes as your organization's needs change. Review your succession plan periodically and keep it current.

"Our company builds succession planning into our business continuity strategy. We weave it into our strategic plan, a rolling 5-year plan that we review yearly," shares Brinker.

Ask yourself, are talent development plans being implemented? How are you monitoring them? And are they delivering results? If not, make modifications as necessary.

You can't afford not to have a succession plan

Research reveals that only 35% of businesses have a formalized succession planning process .

"Most business owners get bogged down with their day-to-day operations and ignore their succession plan, and it only comes to light when it is too late," says Robert Clements , Partner, Wealth Management at LPL Financial. 

Yet, according to the Harvard Business Review, the market value wiped out by poorly managed CEO and C-suite transitions in the S&P 1500 alone is close to $1 trillion a year.

"The most important aspect of succession planning is that an imperfect plan that can ultimately be altered is better than no plan at all," explains Clements.

He recommends communicating with family or key executives early and often about your intentions for the company to gauge their interest and feedback. From there, you can work with professionals to build the succession plan that will allow you to achieve your goals.

No matter where you are in your succession planning journey, BetterUp can help. By providing personalized support to your leaders, you can ensure that you’re tapping into your people’s fullest potential.

Madeline Miles

Madeline is a writer, communicator, and storyteller who is passionate about using words to help drive positive change. She holds a bachelor's in English Creative Writing and Communication Studies and lives in Denver, Colorado. In her spare time, she's usually somewhere outside (preferably in the mountains) — and enjoys poetry and fiction.

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Insights & Info

The complete guide to succession planning.

By Generational Equity

This guide provides essential insight into how careful planning can safeguard the continuity of your business as it changes hands – and how a well-presented succession plan can help you to achieve the optimal exit.

It’s tough trying to be an expert on a process you’ll most likely only complete once. That’s why the right advice from a trusted source will pay dividends when it comes to getting your succession planning process right first time.

Here, we look at various aspects, techniques and implications involved in business succession planning to help you to enter the process fully-equipped with the kind of information that will save you time and money when exiting your company .

Explore our essential guide to succession planning best practices.

Table of Contents:

Can’t picture your business getting by without you?

What if i don’t think my company needs a succession plan, effects of succession planning on deal value, the importance of a succession plan that finds your replacement, timing - don’t leave it late when creating a succession plan.

• 1) Defining the role
• 2) Gauging interest
• 3) Assessing talent and identifying potential
• 4) Alternative Successors
• 5) Developing your business through your succession plan
• 1) Lack of Time
• 2) Procrastination
• 3) Psychological Barriers
• 4) Delegating Responsibility
• 5) Remaining Objective
• 6) Maintaining Company Morale
• 7) Retaining Top Candidates

Family business succession planning

Succession planning policy.

• Emergency Succession Plan

Succession Plan Checklist

Succession planning and building a buyer ready business.

• 1) Asset Acquisition
• 2) Stock Purchase
• 4) Minority Investment

What is succession planning?

A solid succession planning definition would be that it’s the set of measures that you put in place ahead of selling your business to ensure the continuity of the company’s success in the future.

After your exit, the success of your business will have to endure without your leadership – otherwise, how can it be expected to command a good price on the M&A market? Buyers won’t spend top-dollar on a business that is overly reliant on your position as CEO. The business needs to have a strategy in place that will maintain its performance after your departure – that’s the purpose of succession planning.

A prospective client visited our offices in Dallas a few years ago and as we discussed the business and its future, he rather sheepishly said,

“You know I used to think that I was key to the business; 20 years ago when I first started it I was. But last year I took my wife on a month-long vacation to Asia and was in areas where phone and internet access was limited. I mean, I went for days without calling the office and when I did, I learned that everything was going fine. It just showed me that I was no longer key to the operation.”

Now, he was lamenting this, sharing that he was no longer the key decision maker on daily issues that had to be handled (and even some of the larger strategic ones). But we were very happy to be able to inform him that he should look at this as a positive, not a personal negative (yes, his ego was impacted), since he had solved one of the major issues that buyers are concerned about –  succession planning .

The life-blood of privately held businesses in the middle market is the entrepreneur – the owner-managers. It’s these gifted individuals that have grown their companies, weathered years of recession and uncertainty and come out the other side, not just surviving, but thriving. They have achieved this because they have:

• 100% commitment to their business
• Comprehensive knowledge of its operations and market

…but remove that individual, and what happens to the value of that business?

That’s the question many business buyers find themselves asking as they scan the market for opportunities. And it’s the reason why, for business owners considering exit, it’s important to embark on the formidable, disconcerting and ultimately humbling task of planning out how to hand over the knowledge and expertise required to run your company successfully to another party.

The succession planning process is concerned with identifying candidates to replace you at the head of your company, selecting your successor and managing that transition to minimize the impact on your company. But it’s also about securing a greater future for the company and its employees under new leadership with the skills and experience to take the business on to the next level.

Once a business owner puts aside their reluctance to hand over the reins, there is a raft of practical measures they can undertake to kickstart their succession planning process, secure their company’s future and reassure potential buyers.

Why is succession planning important?

We’re talking about what happens after you exit – so why should that bother you as a business seller? In fact, we’ll come to see that succession planning can be of vital importance to optimizing the deal structure you are able to enter into, the legacy you leave behind for family and employees and, crucially, the sum you raise on exit.

It worries us greatly that 58% of small business owners don’t have a company succession plan. But what’s worse is that the reason cited by 42% of these respondents for not addressing succession planning is that they are too busy running their company.

If these businesses can’t cope without their CEO while he or she devotes some time to creating a succession plan, how could that business get by after the CEO leaves the office for the final time? Such a business is surely devaluing itself in the eyes of professional buyers looking for a business that not only has a history of success, but a future too.

You may think this is all very well, but that it doesn’t apply to you. You may feel you have a pretty clear idea of what the future of your company looks like without you. But the future has a knack of presenting us with unexpected outcomes.

Business owners we meet who neglect to make any formal plans for succession tend to be working under the assumption that either one of these situations will come into effect when they exit:

• Either the next generation will step up to take control of the business
• Or someone from within the organization will step forward with a buy-out offer

The problem with these assumptions is the relative rarity with which we at Generational Equity have seen them successfully materialize as planned.

The fact is, most offspring and key employees lack the financial capacity to deliver the maximum value for your business.

Whether or not your anointed successor has the skill and desire to secure your company’s future is a whole separate issue we discuss later in our “Family Business Succession Planning” section, but they’re certainly unlikely to represent the best buyer for your business in terms of optimizing its value.

No one wants to see the transfer of their business to an heir or a trusted colleague fall through, but it’s important for any business owner planning for the future to have a backstop plan in place.

Effective succession planning can demonstrate to buyers that a business has long-term viability. Doesn’t that sound like a good aim for any business owner?

Business buyers, especially those from the Private Equity sector, are a cautious breed and any reassurances that a company’s future is secure will help boost its value in their eyes. Conversely, if there is little to reassure the buyer that the company’s success won’t just depart along with its incumbent CEO – then that is going to ring alarm bells. Buyers will turn away from such a prospect and the value of that business will be lower than that of a similar company that has taken documented measures to secure its future.

The issue you need to realize as a business owner is that by neglecting to implement a succession plan strategy you could be leaving thousands and thousands of dollars in unrealized value on the table. To protect that value, all you need to do is hire, train, and mentor a solid person to replace you. When you consider the impact on your financial legacy, it makes sense to go through a succession plan replacement program.

One of the most important tactics that a business owner can pursue is in the interests of developing a succession plan is the idea of grooming and developing an eventual replacement. Unfortunately, far too many don’t address this issue in a timely manner and are left forced to do so when one of the Big Ds hit –

• Distress (personal or business)
• Disagreement

In his insightful article , Kenneth Greenberg of  Auctus Search Partners, LLC  describes the importance of planning for succession:

According to  a recent study by the Center for the Middle Market , 45% of middle market businesses face challenges lining up successors for critical roles in the business…

Middle market businesses are frequently overly dependent upon owners and a few key executives for core competencies and the company’s strategic vision.

Having a formal and documented succession plan in place will demonstrate to buyers your commitment to the continuity of your company’s performance beyond exit and will bolster its value as a result.

For a number of reasons, succession planning can get pushed to the back burner. Maybe you are so busy with urgent tasks that achieve results in the short-term that long-term planning is ignored. Maybe the idea of relinquishing control is one you are not quite ready to face yet, let alone ideas such as retirement or even death. Our advice, however, is not to leave it too late. In fact, the earlier the better for the value of your business.

This situation is further compounded by this reality:

“60 percent of the 15 million privately held businesses in the U.S. are owned by business owners born before 1964,” says Christopher Nicholas, Shields & Co., at ACG Boston’s DealSource Select.

This means that about nine million businesses will face some sort of decision about the succession of their company over the next 15 years or so.

For the 44% of the owners surveyed who felt that succession is too far in the future, it really is not!  The future will be here faster than you can imagine.

Even if you are not planning to exit for several years, succession planning can benefit the entire organization  because  what got you here won’t get you there . A new generation with a new set of skills may well be what your business needs to drive its progress into a secure and profitable future.

How to do succession planning

Now you have an appreciation of what a succession plan is and why it plays such a crucial role in your future, you’re probably wondering how to approach this process successfully.

The purpose of succession planning is to hand over control of your business in a way that not only ensures its continued commercial success, but provides assurances over the continuity of your business to potential buyers, helping your company command a higher price at exit.

But how do you approach succession planning to realize this purpose? Above all else, you should aim to satisfy the following areas:

• Defining the role – what are the responsibilities of your current role, and what qualities will a person need to be able to take on the role?
• Gauging interest – is there a genuine appetite among your middle management team to take a step up?
• Assessing talent and identifying potential – if there is interest, do the candidates at your disposal have the skills, experience and drive to take on your business? Or will you have to look beyond the walls of your company?
• Alternative successors – even if you have suitable candidates within your family or your middle management team, are there other viable fits outside of your business?
• Developing your business through your succession plan – once you have a vision for your succession in mind, is your business model tailored to make the transition as smooth as possible?

In this section, we will tackle each of these areas individually and how they help you to develop a succession plan with greater assurance.

Developing your succession plan

1. defining the role.

First and foremost, it is crucial to define your role. How can you pick the best person to succeed your business if you don’t have a clear idea of your job description?

Of course, no one will have a better grasp of the responsibilities, skills and mindset required to run your company than you, the owner. But, if you don’t sit down and ask yourself what these are and how they’ve evolved over time, then when you come to determine a successor, you could overlook certain vital skills that a candidate would need to run the business effectively.

So, take some time to consider the following as the first step of your succession planning:

• What are your day-to-day responsibilities?
• What is your motivation for running the company? (and has this changed over time?)
• Which of your characteristics do you believe are key to running your business?
• What skills/qualifications are necessary to perform your role effectively?
• What culture have you instituted in your business?
• What key decisions have you made to support your company’s growth?
• Where do you see your business going in the future?

Frank, honest answers to these questions will give you a clearer sense of your role and how you’ve been running your company. This is essential when determining a successor, whether that proves to be a family member, key employee or external buyer – you need to know the type of person required to continue the development of your business.

To clarify, this does not mean identifying someone who is exactly like you. While you have guided the company to where it is today, your successor might have fresh ideas about developing your business for the future. So, you are not looking for a ‘new you’ to take over, but someone capable of taking on the responsibilities and challenges you face day-to-day as well as guiding the business into the future.

Finally, and we can’t emphasize this enough, write this information down . Having a succession plan set on paper means you and other key individuals have the parameters for your ideal successor to hand at all times, and they can be easily updated and amended over time without any detail being unwillingly forgotten.

2. Gauging interest

When gauging interest among your family or middle management team over the prospects of taking over the reins one day, you should let them answer openly and honestly.

One of the biggest challenges to succession planning is letting go of any assumptions you have about the future and keeping an open mind. All too often, business owners neglect to be thorough with their plan as they convince themselves one of their children or a key employee will take their place eventually, while not vocalizing this or asking the person directly.

This approach could lead you to pick a successor that is ill-fitted for the role based on the criteria you established earlier. Or they could feel coerced into saying yes, even if deep down they have no desire to be the next owner. So, it’s key to keep your options open about who will want to succeed you at the helm of your business.

Because wanting the role is the key ingredient in succession planning. Even if a person fits the mold for running your business, if they aren’t interested in the role, it is a recipe for disaster. Your passion for your company is likely a key driver of where it is today – if your successor does not share this passion, it could halt progress down the road.

3. Assessing talent and identifying potential

Once you’ve determined which parties might be interested, it is now time to assess their potential. As mentioned above, a key element of succession planning is approaching candidates objectively and dispassionately, whether they’re family, team members or external applicants.

An effective technique for formalizing the thoughts and feelings you have about candidates is the “9 Box Succession Planning Model”. Recruiters, M&A advisors and other professionals often refer to this as a powerful aid to business succession planning.

The model grades candidates based on their current performance and their future potential to objectively determine if they have the qualities to be an effective business leader. As you’ll see in the images below, you’re ideally looking for individuals that score highly on both edges of the graph.

9 Box Succession Planning Model

The important thing to remember when using this graph to identify internal or family candidates for your successor is that you are recruiting them for the job they will have, not the job they already have. This means there must be enough ‘headroom’ in terms of their potential to be able to step up.

Identifying those with potential allows your business to devote its attention to those individuals in terms of training and development, but it’s important that the identification process looks beyond how candidates execute their current roles. True potential is the projected ability to perform in roles that exceed their current responsibilities, and that’s the golden quality you’re looking for.

4. Alternative successors

If you’ve followed a thorough succession planning policy up to this point, and discover that you have not been able to identify an appropriate candidate among your family or current staff, or you simply wish to cast your net wider to find the ideal fit, you will want to consider external recruitment strategies that explore the pool of talent in the recruitment market at large.

The earlier work you’ve done in defining your role should benefit this process of recruitment, as you’ll be aware of the characteristics, training and skills necessary for your position. This should help you create specific job descriptions and develop a role that will support their training and development towards the end goal.

As mentioned above, avoid gut-level assessments – the more you review and inspect the performance of the candidates at hand, the better your process will be.

5. Developing your business through your succession plan

The final stop in how to do succession planning relates to how you adapt your business for a future that is ‘under new management’. Even if you’ve found a candidate that meets all the criteria and has excellent potential, work still needs to be done to prepare them for the role. So, your succession plan should include a plan of action for how you’ll train and nurture your candidate and build your business.

Here are some top-line points to growing your business with succession at the core:

• Allocate time and resources for training your chosen candidate, familiarizing them with your role and responsibilities, as well as identify materials to help bolster their  skills and unlock their potential
• Maintain up-to-date job descriptions and company policies
• Institute an annual calendar of your role’s and the company’s most important activities and events
• Conduct evaluations of your candidate on a consistent basis (at least once a year) to ensure they are on track to succeed in the role
• Focus on creating a positive atmosphere and culture in your company to encourage your successor to stay motivated and invested in your future
• Compile a comprehensive list of your company’s details, including your financials, clients, suppliers, collaborators and staff information
• Outline your fiscal policies and procedures to ensure strong oversight of company finances

Research has shown that better results are achieved when high caliber candidates are recognized early on, and developed for a longer period, giving them a greater opportunity, not only to learn, but to become accustomed to the expectations placed upon them.

Operationally, you’ll also need to become more comfortable with sharing your day-to-day actions with the chosen candidate. This level of transparency might be tricky at first, particularly for those with a more guarded management style, but being clear with successors shows your commitment to allowing them to take responsibility when the day comes.

7 challenges of succession planning

Realizing the need to create a succession plan is the first hurdle in securing the future of your business. But this isn’t the only challenge you’ll contend with during the process of developing it.

If you are one of the many business owners who does not have a succession plan in place, the challenges you need to face can appear overwhelming at first glance. But, they will impede you from creating the most secure strategy for your company’s future, hurting its potential and your legacy in the long-term.

Knowing is half the battle, so it is important to understand the potential hurdles you’ll need to take on before starting your strategy. The standout challenges to those developing their succession plan are as follows:

• Lack of time
• Procrastination
• Psychological barriers
• Delegating responsibility
• Remaining objective
• Maintaining company morale
• Retaining top candidates

Below, you will learn more about each of these seven obstacles in detail and advice on how to beat them.

1. Lack of Time

Many business owners without a documented succession plan will point to a lack of time to put this in place. Managing a company is a drain on this precious commodity, which can cause you to lose track of vital responsibilities, like preparing your company for life without you.

It’s important to remember that the future is coming, and it won’t wait for you or anybody else. So, you should set aside a portion of time each day to making your initial exit strategy, which will keep it manageable and allow you to devote most of your day to the demands of running the business.

There’s no hard and fast solution unfortunately – you need to dedicate the time to get results in the future. But this will reap rewards down the road, and once you have a succession plan setup, it will likely just need tweaking every now and again, so you can then be more fully focused on managing your business.

2. Procrastination

You may think your succession is an event so far in the future that there’s no need to establish a plan now. Or the thought of confronting the day that you depart might be too difficult to confront, so you place your succession plan on the backburner.

It’s never too early to start your succession plan – in fact the earlier you start, the more prepared and comfortable you can feel when that moment arrives. Take the mindset of what could happen to your company if you or another key employee departs without a plan in place. It would almost certainly suffer, and it might not be able to recover quickly enough.

Succession planning supports your business and makes it stronger for the long-term, so don’t wait too long to approach this.

3. Psychological Barriers

We have seen that a key element to getting started is overcoming certain psychological barriers at the outset that are preventing the succession process from getting out of the blocks. This may sound wishy-washy to some, but we have witnessed first-hand the emotional factors that affect exit deals from getting off the ground.

The biggest challenge here is confronting your own mortality, or envisaging a time where you won’t be able to take the reins of your business anymore. That is certainly difficult to face, and it is understandable that it might take a while to fully digest.

Something that can help here is thinking of your company as an extension of your legacy. So, by preparing a succession plan that will support its development beyond your leadership, a piece of you will always have played a role in every step it takes going forward.

4. Delegating Responsibility

One common trait most entrepreneurs share is absolute confidence in themselves. By their very nature, this is vital to have. However, the downside is often a challenge in learning how to delegate. If you believe that you are the only mastermind in your business, delegation will be a challenge.

Moving from the founder to leader requires the abilities to surround yourself with talented people and mentor them so that they can develop into your mid- and upper-level management team. Dedicate time to give your successor an unimpeded insight into your role and responsibilities, and educate yourself on becoming the mentor they need for this transition.

5. Remaining Objective

As a business owner, you will know what it takes to run your company based on your own experience. But, this could cloud your mind to other approaches that could help your company reach another level that a successor might one day introduce. Plus, this experience might have instilled assumptions over who your replacement will be.

People find comfort in familiarity, so the immediate temptation will be to choose someone similar to you, or fits the mold you’ve developed over time. Instead, you should plan ahead to identify the characteristics, skills and responsibilities your successor will need. This will help you stay logical and overcome biases, ensuring the best candidate takes on the role.

6. Maintaining Company Morale

Discussion about succession can lead to a negative impact on company morale. This is especially true when it relates to ownership of the business – it can lead to fear over the future of the company without your management, or jealousy and competitiveness among key employees over who succeeds you as owner.

Succession planning should be as straightforward and open a process as possible. Open discussions about who will take the reins next allow all sides to collaborate over the next steps for the business, air any concerns, and get on board with the plan without any contention or secrecy.

7. Retaining Top Candidates

If you’ve identified standout candidates to take over ownership of your business one day, it is likely that other companies will see the same potential in these individuals. Retaining top performers is a challenge for all organizations in this environment, but when it directly relates to the future for your business, it is important to retain those who you intend to lead its development one day.

To fend off the competition and motivate your future leaders to stay with your project, offer development opportunities, training incentives and mentoring to keep them fulfilled in their ambitions. Also, once you’ve determined their role upon your departure, be clear with them about this and why you’ve selected them especially for this position.

Preparing and managing these challenges will greatly benefit your succession planning, helping ensure it stays on track and isn’t left incomplete when the time comes to depart your business.

The longevity of most family-owned and operated businesses hinges on one key component: having a plan in place that clearly outlines who will take the leadership role and when the succession will take place.

Far too many business owners assume one of two scenarios will one day occur:

• One of their kids will take over the business, or
• A key employee will buy him/her out

Both of these scenarios have serious issues attached to them.

First, have you even chatted with your kids about succession? Too often business owners who attend  our exit planning conferences  only do so  AFTER  being told by their offspring that they have no desire to take over the reins.

This leads into another issue: Are you sure your child has the aptitude and/or ability to be a CEO? It is one thing to work in the mailroom, quite another to make the leap to CEO.

Not to mention the insult that could be felt by key employees who have been with you for decades if you hand the company over to your child as your succession plan.

Finally, both of these scenarios carry a huge financial burden to the departing owner. Most offspring and key employees lack the financial capacity to deliver the maximum value for your business.

The third party buyer option is by far more financially lucrative (in most cases) and removes the burden of hoping that offspring or key employees even want to replace you or doubts over whether they’re capable of replacing you.

And the odds are short of family-owned firms surviving past the original entrepreneur. According to  The Economist magazine :

"Even strong and successful firms can implode soon after a generational succession, which is why so many countries have some variation of the saying, “from shirtsleeves to shirtsleeves in three generations” (clogs to clogs, kimono to kimono). Alarmingly, a study of 2,400 family firms in 40 countries published last month by  PwC , a consulting firm, found that  only 16% of them had a “discussed and documented” succession plan in place. "

We have highlighted the last sentence in the paragraph above to stress a key point: A very small minority of family businesses have a documented succession plan. This is a shocking statistic. Most families that have their own businesses usually have nearly their entire net worth tied up in the company. If the family has not created a plan that outlines how and when the founder will step down and who will take his/her role, then financial disaster could be on the horizon.

Remember that there are six Ds that can detrimentally impact the succession of your business:

If any of these (or several) hit your company  BEFORE  you have a succession plan in place, the impact on the family’s financial legacy could be disastrous.

All too often we encounter entrepreneurs who assume that their business will eventually pass on to their children but they don’t do anything to make that a reality. Again, according to  The Economist :

"However, sometimes children do not want to join the family business,  or turn out not to have inherited the entrepreneurial genes of the founder . It may then be in the best interests of the firm for a professional to run it, rather than a reluctant or incompetent scion, even if the family retains some control. Letting professionals take over can make a lot of sense. Talented managers are more likely to join a firm where there is a chance of getting to the very top, or at least where they do not have to work under a useless heir.  Some 40% of the family firms interviewed by PwC said that professionalising their business was among the main challenges they face in the next five years. "

This paragraph points out what many business owners are often far too reluctant to believe: That Junior simply is not talented, trained, and/or lacks the leadership skills needed to run the family company. We strongly encourage every family-owned business that has children that will be taking over the reins to begin training the offspring in all facets of the business early on. The reality is that unless the kids understand each department and how each interacts with other departments, they won’t have a feel for the entire company.

In addition, they need to begin developing the trust of their co-workers that they will be leading one day. Without this trust, no matter who you pick, your successor will have a hard time leading if the employees believe that the only reason your offspring has taken over was simply having lucky genes.

Another great point is that eventually most family businesses will typically need to “professionalize” operations either by hiring talent and/or bringing in outside investors who offer capital, connections, and talent. Quite a few family-run businesses that we work with have reached the peak of how large the company can grow without an infusion of capital. The family and its management, in many cases, have great ideas for growing the company, but they are simply lacking in resources, both financial and otherwise, which is stifling their expansion plans.

If you find yourself and your business at a crossroads with ample opportunity to grow but lacking the means to do so, or if you have realized that your children will not be interested in replacing you, then you need to attend a Generational Equity exit planning workshop. These meetings are educational in nature and are designed to take owners who are in the 84% of the business population  that have no exit plans in place  and give them tools to at least get the process started.

We fully understand that your family’s financial legacy is closely intertwined with the business you are running. We also respect the fact that if your offspring are not interested in the company, then you need to act soon before one of the six Ds listed above come across your path.

What documentation is required for the succession planning process?

A 2018 MassMutual study revealed that only about 50% of business owners have any kind of written succession plan in place. Realistically, if you don’t have a succession plan documented in writing, then you don’t have one at all.

There are many elements that need to be included in a comprehensive succession plan, which is why it is crucial that these are compiled in the documentation. Without this, regardless of the internal planning and preparation you’ve conducted for the future of your company, you won’t have the structure in place to complete the most successful transition possible.

Here, we will outline the most important succession planning documentation you will require: a Succession Policy and an Emergency Succession Plan. This will cover what is included in these and why they are valuable pieces of writing.

Your succession planning policy will be a useful guide during your preparations. It will outline the people involved in the process, the procedures in place for succession and a timeline for how this would take place.

At the start of this document will be a policy statement , which outlines the terms of the succession policy, why this succession plan is in place and the key individuals that will be involved in the course of introducing your successor.

Following this will be the procedures involved. This will differ from company to company, but it will commonly include the following:

• A timeline for the departure of the current owner
• The stakeholders involved in facilitating the transition, and when they should be contacted
• A list of those offering consulting assistance if required, such as transition management or executive search consultants
• Reviewing the company’s business plan
• Conducting an assessment of the company’s strengths, weaknesses, opportunities and threats (SWOTs) to identify top priorities for the successor
• A time frame for the recruitment/selection of a candidate
• A list of other documents needed to support a transition, such as hiring policies and human resources

An emergency succession plan relates to situations where an owner or other key staff suddenly depart or are unable to perform their duties. These unexpected changes are challenging at any time, but the measures in this plan should help to minimize any damage caused.

Here are elements that may be included in a sample emergency succession plan:

• Rationale – the reasoning why this plan is in place and in what scenarios it should be implemented
• Plan implementation – the individuals and procedures involved in facilitating the transition
• Staff role – a breakdown of the roles and responsibilities the candidate will need to take on in this position
• Succession plans – outlining the different actions to be taken if this is to be a temporary, long-term or permanent succession, including the people, procedures and assistance involved
• Approvals – the different channels this succession plan must go through to be implemented

These two documents are pivotal components of your overall succession planning checklist, which will also feature vital information relating to your role and your business. Again, this will vary from business to business, but here are some common elements that might relate to your company:

• Succession Policy
• Calendar of key dates/deadlines
• Job descriptions of various staff roles
• Directions to all key organizational documents
• Directions to all financial documentation and banking information
• Copy of the most recent Annual Report
• Location of current contracts and service agreements
• Location of letters patent
• Location of company policy and procedures manual
• Location of any proposals
• Location of maintenance plans
• A list of key partnerships and referral contacts 

Succession planning and selling your business

Sometimes the ideal successor for your business isn’t found internally, but is a buyer with shared experience of running a company like yours. Here, we outline the role of a succession plan in the process of selling a business .

The choice of a successor for your business shouldn’t be limited to a family member or an employee. As mentioned above, these individuals may lack the desire, skills or experience to build on the work you’ve done for the company.

Consider the development of your succession plan as a financial investment in your company’s future, because frankly, this is exactly what it is. You cannot allow emotion to cloud the selection of your successor, even if it initially feels cruel or unjust that one of your key employees or family members won’t take the reins going forward. Sentimentality won’t compensate for them not being fit for the role.

The option of choosing an external buyer or investor as your successor is often far more financially lucrative and removes the burden of hoping your offspring or employees want to replace you, or the doubts that they will be able to step up to the plate. Plus, if they have experience with another company, they might be more likely to have the skills to take your business to another level.

Succession planning is all about creating a sustainable future for your business, which is what buyers will be looking for. Remember, when a buyer acquires a company, they are not buying its past or present – they are focused on the future. Anything that appears to risk the future of your company will be a big red flag for prospective buyers, reducing its value in their eyes.

This is where succession planning can play a key role in building a “buyer ready” business. Buyers are looking for illustrations that the business owner has made (or is in the process of making) the challenging transition from one owner to another as straightforward as possible. A detailed succession plan is a clear illustration of this.

As your succession plan will outline the features you consider crucial to effectively run the business beyond your ownership, fitting buyers will see their own qualities in this, and feel reassured that, with their skillset, they can have success with your company.

Even if your succession plan has outlined a family member or key employee as your successor and you decide at a later date to sell, it will identify to the buyers the key staff and people they will want to prioritize to support the transition and keep the company’s development on course.

If you haven’t found or groomed a replacement, buyers will view that as a risk, and any perceived risk will impact your ultimate valuation. Consider the financial consequences as you weigh the cost of creating a succession plan.

How deal structure affects succession planning strategies

When you come to sell your business , you may find that there are a few different deal structures open to you. Depending on your aims and those of your most likely buyers, you should consider tailoring your succession planning strategy to cater for the deal structure you envisage taking.

There’s often an assumption among private sellers that the deal they do on exit will be a 100% cash out deal that takes them from owner and CEO to detached, disinterested party with the scrawl of a signature.

But let’s have a look at 4 of the most common alternatives to this traditional deal structure, and their influence on how you should conduct your succession planning.

1. Asset Acquisition

This is where the buyer purchases a business’s assets without necessarily purchasing the business itself. The extent of the purchase will generally be determined by the appetite of the buyer. The seller may welcome the convenience of a cash sale under these circumstances, but may leave an awful lot of cash on the table if they inadvertently disregard and fail to monetize aspects of their business such as brand equity, existing custom, goodwill etc.

In an asset acquisition deal that effectively dissolves the existing business, succession planning becomes an irrelevance and will have no bearing on the value of the deal. However, this kind of deal would represent a pretty sorry worst-case scenario for most proud and successful business owners. For sellers wishing to divest their business as a going concern, effective succession planning goes a long way to securing the future of their company, bolstering its market value and avoiding a sale that only realizes the value of its tangible assets.

2. Stock Purchase

Here, a majority share in the business including the seller’s assets and liabilities is purchased by the buyer. This kind of deal is tax-efficient, achieves the seller’s aims of divestment while allowing for the continuation of the business and can potentially be completed quite quickly.

Under these circumstances, the continued success of the business is very much in the buyer’s interest and the brighter that future, the more valuable the business. In this case, strong evidence of effective succession planning, including assurances that an existing management team will remain in place, will be very attractive to buyers, especially those from the Private Equity sector. Generational Equity has seen evidence that private equity firms are beginning to insist that there is continuity of proven management teams post-sale.

One lower middle-market equity firm we came across, has this stipulation for prospective acquisitions:

“We will invest only when proven management teams with demonstrated records of success are part of the opportunity.”

Notice that this statement is plural. They look for management teams. If you aren’t developing and grooming a cadre of managers to eventually replace you, you better start soon.

Also, as part of many deal structures we are currently seeing in the market, sellers are having to carry paper financing the deal – that is to say, the seller remains a stakeholder in the business for typically 5 to 10 years following the initial transaction. In this situation, if the business falters under new leadership, the seller’s pay-out can be dramatically affected for the worse.

These deals shift the emphasis of responsibility for the business’s continued success toward the seller – all the more reason for thorough and effective succession planning.

Clearly, we are talking about two companies coming together to form a single business entity. It’s difficult to discuss any implications for succession planning that this type of deal may have because no two mergers are alike. The deal may feature any number of clauses governing any restructuring that would result from the amalgamation of the companies involved, such as the new leadership structure and how duplication of roles and resources is addressed.

Sufficed to say, as CEO you work hard, and that hard work will still need to be done post-deal, whether you are involved or not. Considerations such as the consolidation of top roles will be high on the agenda of any merger deal, and if it’s your aim to remove yourself from the business as part of the process, measures will need to be put in place to ensure a smooth and successful transition. Preparations may be delicate and complex, and are likely to involve leaders from both merging businesses.

4. Minority Investment .

This increasingly popular deal structure is where you divest a minority stake in your business to an investor or investors but retain the majority holding and control of the business. On the face of it, of course, this process might seem to do away with the necessity of succession planning. You’re still in charge, right?

However, this solution only puts off the inevitable, because you’ll want to retire one day. Plus, you now have significant investors with a stake in the continued success of your business. They will be even more incentivized than you are to have a succession plan in place for when you go for good.

And that’s no bad thing. Between your minority investment deal and your eventual retirement, you’ll have assistance and motivation in implementing an effective succession plan.

So planning what kind of deal structure you are aiming for goes hand in hand with succession planning.

These examples cover in broad terms some of the headline categories that exit deals can fall into. But the sheer diversity of deal types out there is all the more reason to consult an experienced M&A advisory firm during your exit planning journey. Thanks to the dozens and dozens of ways we have structured deals, our deal teams have the experience to create a package that works best for your ambitions, whether it be a full 100% exit or if you retain a majority and bring in a deep-pocketed partner.

We know that what works best for you might not make sense for another business owner. Our deal teams take the time to get to know each client and develop a deal structure that works for that company’s particular situation. Only then can you be fully aware of the requirements that your succession planning must fulfil.

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I need to say an immense thank you to Don Ho for his stellar work ethic, attention to detail, and tireless effort. Also thank you to the whole crew at GE! Without you, Don could not do such a phenomenal job. We were shooting for closing and funding before the end of 2020, due to the uncertainty of the political landscape and taxes. I am happy to report we closed last week and will be funding tomorrow.

Generational Equity’s assistance was invaluable in compiling and marketing our business.

I am pleased that I was able to work with Andrew Byrd throughout this experience. From the first meeting we had in Minneapolis I felt that I was in good hands. His knowledge and expertise is second to none. He guided the process consistently throughout. I feel lucky that I was pared with Andrew and could not be happier that I chose Generational Equity to handle this major life event. Thank you Andrew and GenEq for everything!

I must say that I have never worked with a more driven, competent and focused individual as Don Ho.

The professionals at Generational Equity then helped develop a roadmap for enhancing the value of the firm and an evaluation report. This was completed by June 14, 2021. We then developed the Confidential Information Memorandum and put Taylor Studios, Inc. on the market by July. Generational Equity’s professional staff helped me every step of the way. Their network and professionals are the only reason I sold my company this quickly. For me this is a once in a lifetime sale and I was unfamiliar with the process. I was able to lean on them with questions and concerns.

Through the sale process, Generational brought in several interested buyers and we closed in about 6 months. I am so glad I accepted that invitation to the conference and could not be happier with the whole process. The team at Generational coupled with their knowledge and guidance was so valuable that in the end, I know I could never have done this on my own!

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The most important contribution I think Ahmad made was with his personality and work ethic. He is sincere, efficient, and very hard working. He was available to me at all times, whether it was for specific detail of the negotiation or just to talk through the bigger picture. He listened, advised, and recommended, but never forced his idea or opinions. In the time we worked together, he became a valued colleague and also a friend.

I decided to attend the conference and hopefully receive some guidance on how to structure an exit plan of my business. Upon arriving at the conference, I was so impressed with the presentation given by Generational Equity that I set a future appointment that week to discuss the possibility of selling my business with their Senior Managing Director David Robinson.

Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.

We had the pleasure of working with Mr. Ahmad Behjati Managing Director, M&A, for Generational Equity during our acquisition of Papa's Dodge in late 2021. Generational Equity and Mr. Behjati represented and marketed Papa’s Dodge. As our primary contact, Mr. Behjati was professional in every facet of this acquisition process, conveying valuable advice most times and assisting us in every step of the process.

The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.

T.D., thank you so much! You are a great leader! I love how you are using your gifts and talents to better others. You are clearly a GREAT COACH! This 3 day session undoubtedly changed the future of our business, and very well may have been the sole catalyst to save my company, my health and my marriage! A genuine “thank you” from the bottom of my heart.

I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.

Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!

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We thank you Eric and Generational Equity making our dream come true.

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We were represented by Michael Goss with Generational. The due diligence was grueling and exhausting, but Michael propped us up and kept us motivated throughout the process. Debi and I continued to ask each other how we could possibly make it through this process without the assistance of Michael. Michael's professionalism and knowledge is absolutely amazing, and we are so blessed to have had him by our side as we made our future dreams come true.

I wanted to take this opportunity to thank you for all that you have done for us. Not only did you take care of all the aspects of the sale but took extra care to make sure we knew what it looked like every step of the way. I will definitely recommend your company to anyone that is in a position to or looking to exit their business.

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Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.

I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.

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The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.

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Professional & organizational development, succession planning.

Succession planning is the process of identifying the critical positions within your organization and developing action plans for individuals to assume those positions. Taking a holistic view of current and future goals, this type of preparation ensures that you have the right people in the right jobs today and in the years to come.

In the long term, succession planning strengthens the overall capability of the organization by:

• Identifying critical positions and highlighting potential vacancies;
• Selecting key competencies and skills necessary for business continuity;
• Focusing development of individuals to meet future business needs.

A succession plan identifies future staffing needs and the people with the skills and potential to perform in these future roles. Professional & Organizational Development’s Succession Planning Toolkit will help guide you, though we strongly suggest you involve your assigned HR consultant and/or HR administrator in this process as well.

We’ve broken succession planning down into three phases with clear steps, and the Succession Planning Toolkit (PDF) comprises a series of worksheets that move you through the succession planning process. Within this document, you’ll find templates and tips for:

• Ensuring succession planning is closely tied to business strategy and goals;
• Understanding the importance of engaging executive and senior leaders in the process;
• Clearly defining the development of key talent; and
• Ensuring staff understand their role in the process and know what is expected of them.

Assessment phase

Step 1: Identify significant business challenges in the next 1–5 years.

Step 2: Identify critical positions that will be needed to support business continuity.

Step 3: Identify competencies, skills, and institutional knowledge that are critical success factors.

Evaluation phase

Step 4: Consider high potential employees.

Step 5: Select the competencies individuals will need to be successful in positions and to meet identified business challenges.

Development phase

Step 6: Capture the knowledge that individuals possess before departing the organization.

Step 7: Develop a pool of talent to step into critical positions through targeted career development strategies.

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Latest blog posts, the succession planning process in 7 simple steps.

Succession planning: it’s planning for the worst by expecting the best. That’s because this is your organisation’s opportunity to plan ahead of key departures while preparing current employees for future roles and developing them.

Whether you call it succession planning, anticipatory  workforce planning  or something else, succession planning can be a win-win for your people and your business. This article will help not only outline how to do it, but how to succeed at it, too.

• 1 What Is Succession Planning?
• 2 What Is The Succession Planning Process?
• 3 Succession Planning: Frequently Asked Questions
• 4 Is There a Succession Planning Framework?
• 5 The Succession Planning Process In 7 Steps
• 6 The Two Most Common Succession Planning Process Mistakes
• 7 What Metrics Determine Succession Planning Success?

What Is Succession Planning?

Succession   planning  is the process of replacing your organisation’s leaders and managers with high-potential, internal (sometimes external) replacements. Essentially, it is about identifying, developing and replacing employees to make a potential shift in responsibilities/hierarchy as smooth as possible.

What Is The Purpose Of Succession Planning?

The  purpose   of   succession   planning  is complex. It is not simply about damage control or replacing a key leader as quickly as possible. It’s about replacing a leader with someone prepared for the role, with the potential to succeed, who can shift into the position both quickly and successfully (with added emphasis on  successfully ).

Why Should You Build A ‘Succession Plan’?

Building a  succession   planning   process  or  framework  is about mitigating the risks of organisational change. This way, when a change at the very top occurs, the friction between departments, teams and employees is reduced or becomes nonexistent, because the ‘vacuum’ of institutional knowledge is removed.

What Is The Succession Planning Process?

Let’s consider the image above as a quick run-through of how the succession planning process works, these are the seven key steps in the succession planning process:

Start identifying key positions

Identify needs

Develop your job profiles

Start the recruiting process

Appoint a successor

Handover the job

Document the transition

Later on in this article, we break each of these seven steps down so that you can master succession planning with ease.

Succession Planning: Frequently Asked Questions

Who should lead succession planning.

HR is primed to be a key leader when it comes to succession planning. That’s because both succession planning and workforce planning go hand in hand. As part of projecting the future of an organization, HR teams need to have an incredibly clear vision of the key roles within an organization, and what it would mean for those roles to become vacant.

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How Does Succession Planning Relate to L&D?

If we think of succession planning not only as replacing but of adequately preparing employees to take on new roles, HR has a role to play here in terms of career development, learning, and training.

What Are The Benefits Of Succession Planning?

Because it keeps hiring costs down, improves your employer brand , and boosts retention rates at the same time. Succession planning matters because it helps to maintain a foundation of organizational stability, even in times of profound change. It ensures that even when key employees, their absence (at least professionally) is not felt.

Is Succession Planning Becoming More Popular?

The growing demand for succession planning strategies will grow as an entire generational workforce (primarily baby boomers) will retire. As a result, companies need to find qualified employees who can pick up these leadership roles and run with them. In sum, succession planning allows companies to preserve key qualifications while avoiding protracted and costly recruiting processes.

How Often Should Organisations ‘Succession Plan’?

Succession planning should be a yearly topic for companies that are growing quickly. Or, it could be thought about in five-year increments for companies on a steadier trajectory of growth.

Is There a Succession Planning Framework?

If you want to start a succession planning strategy, you need to have a plan in place. But, where do you start? Here are some of the general steps you’ll need to take:

Keep in mind, though, that succession planning is not only relevant for large or medium-sized companies. Even small, family-run businesses should have a plan in place when it comes to successful succession.

Looking to build up talent pools in your org? Read our full guide to it today.

What Is The First Step In Succession Planning?

The first step in succession planning is  identifying   key   positions . After all, succession planning is based on departure, so you need to consider which roles are at risk.

Key positions come in all shapes and sizes. It helps to have a strong handle on where the highest amounts of ‘institutional knowledge’ exist within your organisation. Once you know that, you can prepare for departures accordingly.

The nine-box grid can serve as the first step for your succession plan. Read about it right here.

The Succession Planning Process In 7 Steps

Now that you know a bit more about succession planning as an HR strategy, and why it matters, how can you do it? Here are seven well-coordinated steps to ensure key positions are filled successfully…

1) Start Identifying Key Positions

This is going to require some internal reflection. Begin the succession planning process by identifying qualifications that are essential to your company’s success. This could include years of experience, qualifications or licenses, or other ‘soft skills’ that have an impact on company success (like customer relations abilities, for example).

Then, you need to write them down. So, take these qualifications essential to your company’s success and document them in what we might call ‘ initial job profiles .’ Now you have an idea of what you need, relatively speaking, but we need to dig a bit deeper to get to the core of the issue…

2) Identify Needs

If we start by knowing the key qualifications that influence success, now we need to plan for where we might lose those skills . So, you need to establish which key positions might become vacant in the near future. Ask yourself:

Which employees are about to retire?

Are any employees currently pregnant?

What is your overall attrition rate ?

You can also take a top-down approach in this step, and plan for your entire company’s succession plan starting from your CEO to executive leadership and further down the organizational chart. That said, if you are in a pinch and want to get started immediately, you should start filling gaps that may reveal themselves sooner than later.

In this step, it is also important to include the financial resources you may need for the recruiting process. It is important to note how the recruiting process transfers into time (and money) spent. It’s also at this point that proper recruitment software can help maintain efficiency without draining resources .

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3) Develop Your Job Profiles

A key part of the succession planning framework is having fleshed-out job profiles in place. What constitutes an effective job profile, though, and where should you focus your efforts? Here’s a quick rundown:

Think of this as your template for finding the ideal person to fill this role in the future. Essentially, it is taking the current person who occupies this role and turning their skills into something of a blank canvas. This transforms skills thought to be irreplaceable into an actionable plan for recruiting.

4) Start The Recruiting Process

Concrete examples of succession planning typically begin during the recruiting process . This is where the process takes shape, and it helps if you approach it from several key angles, including:

Building up your talent pool.

Implementing an employee referral program .

Providing targeted upskilling training for current employees.

If you are taking a proactive approach, maybe you have all the time in the world for succession planning. But, if you’re low on time, you may want to set deadlines for finding a suitable candidate or completing the handover period.

5) Appoint A ‘Successor’

Whether internally or externally, this is the part of succession planning that signals the end. While a lot of the heavy lifting may have been done during the job profile stage, now you have someone in mind who could be able to take on this role.

Apart from interviews, though, finding the right candidate during the succession planning process should rely on more nuanced measures. You should work with assessment centers , case studies, or work trials, to determine the best fit.

That said, a technical fit is not always a cultural fit. For succession planning to be successful, it often comes down to how someone fits within a company’s distinct culture.

How do you begin to evaluate this? First, you likely need to have a hold on your own culture and what it means to work with your company, but you may want to consider the following to evaluate a candidate’s fit:

An interview with potential peers to see if they mesh well.

A case study directly related to their soft skills (perhaps giving or receiving feedback).

Scheduling a more casual interview setting (like lunch) for a candidate to show more of their personality.

This is the part of succession planning that you need to get right. After all, you now have someone that you have deemed the right fit for the role. So, they need to be the right fit from multiple angles, and not based on whether they can do the job or not.

6) Hand Over The Job

When done right, succession planning also loops in the person leaving the role. This is most felt during the handover process , where a new employee gradually learns their new tasks, both from their future coworkers and team leads, as well as from their predecessor (who will share existing knowledge or institution knowledge they only have).

Keep in mind, though, that the handover period shouldn’t be too short. Especially if a key position is being filled, it is important to bake in more time (think in terms of months and not weeks) for an employee to manage complex tasks that used to go smoothly. They will get there, but they require patience.

However, if a handover period is too long, there is a risk that the successor won’t be able to come into the role in their own right. They will be too influenced by how the role used to perform, and you may lose out on the future-oriented skills that you feel this role needs to thrive.

The best answer is somewhere in the middle. While team leads should have a long-term perspective, there should be an active, fast-paced, and collaborative approach to handing over knowledge. Ideally, this would also be done through confluence pages or a company wiki, where institutional knowledge is public and not private.

7) Document The Transition

Now that the handover of the job has been completed, what comes next? Documenting the transition is a crucial step, in order to note how the position was filled and to inform future processes. Keep in mind the following:

The demands of this position in particular.

Processes that went smoothly during the handover.

Issues during the handover that caused confusion.

Gaps that still potentially exist.

In the future, this will help optimize your recruiting process, as well as succession planning strategies for similar roles that may become available.

How Do You Identify Important Positions For Succession Planning?

Keep some of these succession planning best practices in mind:

In the end, it is key to think about it like this: Seniority is not the only qualifier for succession planning in a company. You also need to keep in mind skillsets, relationships, how long someone has been at a company, and if they were at the company during a key stage of growth or during challenging times.

For example, an IT specialist may hold a key position within your company if they are competent in a programming language that is important for your business. While they may not even be senior, they may have invaluable skills that would make their departure a key loss for the company.

When Should A Key Position Be Filled Externally?

For succession planning to be successful, you need to think about whether your company currently has the talent to replace a key position. This means that, even if it is cheaper to fill a position internally, it does not guarantee that a current employee is up to the task.

In fact, an employee may not be qualified for the role, but they also may not be interested. Here is what you should consider for either internal or external fillings:

The Two Most Common Succession Planning Process Mistakes

Effective succession planning is crucial when it comes to one key filling: your CEO. In most cases, CEOs don’t retire every day. However, one in every ten successions is unexpected.

For this kind of succession planning to work, you will need to have a set of specific steps prepared. More importantly, please make sure you don’t fall into either of the following two common traps:

1) Underestimating The Time You Will Need

Start the succession planning process early. Ideally, you would do so five years ahead of time. This would then entail developing steps and processes to find the ideal succession candidate to manage the transition effectively.

After all, this is about far more than simply finding the right fit. You need to find the right candidate, develop them, and prepare them for the role, and this can take a great deal of time and effort.

2) Not Having A Contingency Plan

If a key person leaves a company unexpectedly at short notice, their position may remain vacant for some time. That is if you have not actively planned for their succession well ahead of time.

But, certain positions need to be filled quickly to make sure the company stays on track. In exceptional situations, you shouldn’t wait until you’ve found the right candidate – work with interim management instead.

In these cases, HR consultants will usually provide an experienced manager for a temporary deployment at short notice until a permanent successor has been found.

What Metrics Determine Succession Planning Success?

Now that you have a succession plan in place, how do you determine if it is working or not? These key metrics and KPIs can give you a relatively accurate read of whether or not your plan is working correctly:

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Credentials

How Some Law Firms Are Reimagining Succession Planning

By MP McQueen

Janet Goelz Hoffman, a Chicago-based senior counsel and pro bono counsel at Katten Muchin Rosenman, successfully accomplished a feat few lawyers want to think about— giving her clients away.

In 2021, when she was 72 years old, she transitioned from her role as a transactional partner in public finance who advised nonprofits on their finance and governance issues to the senior counsel role working with pro bono clients.

Over a seven-year period, she transferred her work and portions of origination credit for bringing in clients to other partners after discussing her plans with the CEO, she said. Katten is one firm that does not have a mandatory retirement age for partners but allows them to transition to other roles within the firm. Hoffman said the move to counsel “means you are a retired partner and stop drawing from the profits. Then you can start a different relationship with the firm.”

After Hoffman, now 74, identified which partners or senior associates would take over her clients, she “transitioned increasing parts of the origination credit from me to the person working with that client as they took on increased responsibility. Then the firm would work out what they thought was appropriate for me and for the younger lawyer,” she said.

Increasing origination credits for the younger lawyers would help them feel more attached to those clients and “was an appropriate acknowledgment of the responsibility they were taking,” Hoffman said.

Katten is among the firms affirmatively planning for the future. Some are reevaluating policies on compensation and origination credit—a form of compensation awarded for bringing a new client to a firm. Others are coming up with new leadership structures that reflect the increasing complexity of law firm management.

Transitioning Senior Partners

In Big Law, many senior partners have a need or a desire to keep working and sharing their hard-won experience, though about half of large law firms have age-based mandatory retirement policies, according to Citi Private Bank. Other firms have age-based de-equitization or executive committee exit requirements, said Peter Giuliani, partner at Smock Law Firm Consultants.

At the same time, many senior associates and junior partners value the opportunity to share origination credits and income from developing new business relationships, and hope for the opportunity to take over those relationships when senior attorneys retire or leave, according to surveys and interviews. Business development, after all, is a primary criterion for promotion to equity partner and firm leadership in Big Law.

Hoffman gradually transferred some of her credits along with clients as her eventual successors assumed more responsibility for them.

Chad Doobay, 45, a Katten government and public finance partner also based in Chicago, took over some of Hoffman’s clients when she transitioned to pro bono counsel. He said her mentorship during that period was invaluable.

“She would not take a call unless I was there, too, and we took calls together. She would know the right answer to questions but refrain from answering them and give me space to answer,” he said.

Doobay said Hoffman “was careful to share origination credit with me very early on,” which helped him advance when he became partner in 2017 and also gave him “more confidence in taking ownership and responsibility for the client relationship.”

It also helped make the transition “seamless” for clients. “The way Janet did it really is the model for how everyone should be doing it,” he said.

Hoffman said, “one of the things I’m super proud of is that not a single firm has left the firm or bid out the work, which also says a lot about the people who took that responsibility over.” She said that she had built decades-long relationships with some clients.

Hoffman acknowledged that not every lawyer or firm has such a process. “I know several other people with different personal circumstances and needed a faster or different exit strategy, but I think Katten has done a good job on it and better than some other firms that are more rigid about mandatory retirement,” she said.

Updating Leadership, Origination Credit Structures

Some firms are putting in place leadership structures that differ from tradition, with two or more leaders assuming control.

“The job is getting too complex and may be too large for one person to manage,” said David Wilkins, Director of the Center on the Legal Profession at Harvard Law School. In general, in the last decade there is a “move to dual management structure which was common in the UK, but less common in the US,” he said. Increasingly firms also are having roles overlap for as much as a year, he said.

For instance, Holland & Knight managing partner Steven Sonberg announced in June that he plans to step down after a 16-year term as managing partner in the first quarter of 2024, when he will be 76, and named three multigenerational successors. M&A partner Robert Grammig will assume the newly-created role of chair and CEO; David Whitestone will become managing partner and Tiffani Lee will step into the role of deputy managing partner.

Similarly, Fried Frank announced last month that it would for the first time change to a new three-person leadership team structure effective March 1, 2024. Previously, the firm was led by a chairman. In 2021, Vinson & Elkins elected a new four-person executive committee, effective Jan. 1, 2022, revamping its two-person structure that had been in place for about a decade.

In an example of a revised compensation system, Mintz PC overhauled its origination credit policy in 2015 to give no attorney more than 75% of credit, with the rest to be shared among those helping to originate or develop the client relationship.

“It was partly succession planning and [partly] trying to develop deeper ties with firm clients and how origination ties into that,” as well as fostering collaboration and sharing, said Bob Bodian, managing member of the firm founded in Boston in 1933. Bodian said another change was allocating credit by matter, rather than just by client.

Bodian said he has been approached by leaders of at least a half-dozen other firms interested in a similar approach.

“The hardest thing for any firm is getting buy-in from the partners who traditionally have all the origination,” he said, adding that he didn’t have a problem getting this from his partners.

Bodian said the change, in addition to fostering collaboration, seems to have improved attorney retention at Mintz and improved opportunities for the younger and diverse attorneys at the firm.

Elsewhere in the legal industry, about 30 firms and companies have agreed to help Diversity Lab test in 2023-24 a new element of its Mansfield Rule— a certification program to help foster equal opportunity for leadership at firms and legal departments—called the “Next Gen Pilot.”

It aims to increase transparency by tracing and documenting how credit recognition and client succession processes work, said Caren Ulrich Stacy, Diversity Lab founder and CEO.

Legal Departments Want a Say

Company legal departments are also asking to be more involved in client succession planning in terms of who takes over their matters.

Damon Hart, executive vice president, chief legal officer, and secretary of Liberty Mutual Insurance Company, said in an interview this summer: “Open communication early on would be great. This is what it looks like over 18 months or years or several quarters. This is who we think will pick up the responsibility. What do you think?”

But Hart, whose own transition to CLO took place over 14 months during which he served concurrently with the previous CLO—said that when relationship partners retire or otherwise leave, law firms vary widely in how they inform legal departments, with some being very abrupt and others giving ample notice and thoughtful preparation.

“As purchasers, we want to be involved in these from a cultural perspective, from a DEI perspective,” he said in an interview in August. “Not that we want to dictate, but we want to be involved in who is the relationship partner.”

Marie Ma, chief legal officer of Articulate Global LLC, a producer of educational software as a service, said in a recent interview, “I think if there is clarity on when a partner is retiring, my hope is that I would be brought into the conversation about what their intentions are sooner rather than later.”

Ma added that she would be willing to advocate for a particular successor: “If I have someone at a law firm that I’ve been working with for a long time and trust as an important partner, would I be invested in their success at their firm, yes.”

To contact the reporter on this story: MP McQueen at [email protected]

To contact the editors responsible for this story: Lisa Helem at [email protected] ; Cesca Antonelli at [email protected]

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Enterprise resource planning, or ERP, is a business management software system designed to manage and streamline an organization’s functions, processes and workflows with automation and integration.

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A term coined by  Gartner in the 1990s , an ERP software system is designed to manage all parts of a business—finance, HR, manufacturing, supply chain, services, procurement,  supply chain management , product lifecycle management, project management and more—making it an essential part of an organization’s day-to-day business operation. ERP software consists of business applications that are all connected and share one common database, therefore decreasing the number of resources necessary to run the business end to end.

The business applications, known as enterprise modules, each focus on a a specific business area but work together to meet the company’s needs. Since businesses range in size and needs, and no two are alike, modules are not one-size-fits-all. A company can pick and choose which modules are best suited for their business..

The best way an enterprise resource planning system can deliver the most value is when a company takes advantage of modules for each business function. By having a central location for all business data, ERP implementation cuts out the silos that complicate data collection and create data duplication challenges for many businesses. The new system (the ERP model) serves as a single-source-of-truth software solution.

ERP software systems come in three different forms:

- A cloud subscription model ( software as a service )

- A licensing model (on premises)

- A hybrid model

Read on for more detail on these three systems and the different modules commonly available with an ERP software management system.

There are three types of ERP software systems: on-site systems, cloud-based systems and hybrid systems. They all differ from one another and have their advantages and disadvantages, depending on what the needs of the business are and how the business chooses to approach the ERP model. Any of these enterprise resource planning software systems can help a company in decision-making and profitability.

On-site ERP:  This software, also referred to as on-premises ERP, is deployed onsite and is mostly controlled in house, or by the company’s enterprise. A business would choose this option if the business wanted to be in total control of the ERP software and security. If you were to go with this ERP software option, it would require a dedicated IT resource on-premises to handle the technical and application maintenance.

Cloud-based ERP:  The cloud-based ERP system, often referred to as software as a service, or SaaS, means a third party is managing the ERP software in the cloud. Using technologies such as  artificial intelligence  (AI) and  machine learning , this flexible option system can provide greater automation efficiencies and allow employees to search through organizational data on any device through the internet. IBM, Infor, Microsoft, Oracle and SAP offer new ERP solutions.

This is a popular model for ERP software due to its scalability and agility, along with its lower cost. The main disadvantage is the security risk you take when trusting an ERP vendor. The data for your business is sensitive and requires careful handling.

Hybrid ERP:  This system is for companies looking for characteristics of both an onsite and SaaS model to meet their business requirements. In this model, some of the ERP applications and data will be on the cloud and some are on premises. This can sometimes be referred to as a two-tier ERP.

ERP systems are based on a variety of different modules that are there to support specific business processes. There are a select number of modules that are foundational to an ERP system and there are third-party applications to access additional features. Some of the most popular modules are listed below and give you deployment options.

Finance and accounting:  The finance and accounting module is often most important to many ERP systems. The main purpose of this module is to help businesses understand their financial outlook and analyze the whole business. The main features of this module are tracking accounts payable (AP) and accounts receivable (AR), while also closing the books efficiently and generating financial reports and pricing. This module can automate tasks related to billing and stores crucial financial information for your business, such as vendor payments, cash management and account reconciliation. It also provides clear metrics to a company and can aid in production planning operations.

Procurement:  The procurement module, or purchasing module, helps businesses source materials and services they need to manufacture their goods. This module helps to automate purchasing, along with tracking and analyzing any incoming quotes. With the procurement module companies can maintain a list of vendors and tie suppliers to certain items, which can in turn help develop and manage a good supplier relationship.

Manufacturing:  The manufacturing module, often referred to as a manufacturing execution system, is a vital planning and execution component to ERP software. The module helps manufacturers plan out production and ensures everything needed for production is readily available. A manufacturing module can update the status of goods-in-progress, along with providing real-time information for items in progress or finished goods. The module also typically includes material requirements planning (MRP) solutions, which was the original manufacturing system of toolmaker Black and Decker. 1

Sales:  The sales module is responsible for keeping an open line of communication to customers and prospective customers. It can use data-driven insights to increase sales and make targeted decisions and assist with invoicing when it comes to promotions or upselling opportunities. Other features, including supply chain solutions, offer helpful inventory management and order management include dashboards, greater business intelligence and Internet of Things (IoT) technology.

Customer relationship management:  The  customer relationship management  (CRM) module, or service module, helps companies deliver exceptional service. By storing customer information, such as previous calls, emails and purchase history, a business has the data it needs to better serve current and future customers. This module makes it easy for staff to access the required information when a customer comes in and sees that staff create a customer-specifc experience thanks to the data saved from the ERP software.

Human resources management:  The human resources module maintains basic capabilities, such as time, attendance and payroll. This module maintains data on all employees and stores documents that pertain to each of those employees, such as a performance review or job description. If a company wants, it can have an entire  human capital management  (HCM) suite and connect it to ERP to deliver even stronger HR functionality. 

While stand-alone accounting software and ERP software do present similarly, the two systems are quite different. It comes down to what each software system can do and cover. Accounting software typically covers financial reporting, accounts payable and receivable, banking and basic sales revenue information.

Meanwhile, modern ERP software includes a wide range of modules that can reach every aspect of your business. Accounting is just one module in a long list of other features that ERP technology can provide. The ERP software is built for industry-specific requirements and can be molded to fit almost any company’s needs.

Accounting software has other limitations when it comes to sales and customer relationship management and limited real-time data accessibility. The ERP software has modules specific to sales management and isn’t siloed to what accounting software can do. ERP integrates all financial information into one database and can be done in the cloud for easy accessibility.

If your small business is expanding rapidly, it may outgrow traditional accounting software and the business may want to seek out accounting data in one software package, such as ERP. Having all its data centrally located is key for small and big businesses to gain insights and having a multitude of modules available through an ERP software can help you as your business changes.

The benefits of ERP are wide ranging, with the most prominent being increased productivity, reduced operational cost, flexibility and integrated information. The business intelligence ERP deployment offers is much more substantial than traditional accounting software offerings.offerings.

The need for accurate, real-time data is essential to almost every business, no matter the industry. Here are some businesses that rely on ERP solutions.

Utilities:  A utility company is constantly reviewing its capital assets, therefore, without ERP organizing such assets would be very difficult. The ERP software can also help utility companies forecast demand for future services and replacing aging assets.

Service companies:  Companies such as accounting, tax, engineering and other professional service firms require ERP software that is powerful and delivers real-time data when needed. Professional service businesses can’t afford to experience delays. ERP software helps them stay on schedule while controlling cost and resource utilization.

Wholesalers:  For most wholesaler and importer businesses, reducing distribution costs and increasing inventory are two key elements of success. The best way to keep a business in order and running efficiently is through ERP software with modules customized to its needs. With it, wholesalers can get a handle on inventory management, purchasing and general logistics for their business.

Retail:  A lot of purchasing is done online thanks to e-commerce and other sales channels, which have changed the retail landscape substantially in recent years. Retail businesses are dependent on integrated data as they need ERP software to provide self-service options to customers. The ERP solutions can assist with purchase orders and warehouse management. Retailers can also benefit from ERP to boost their customer return rate and improve webite conversions.

IBM Consulting helps you successfully migrate legacy ERP applications to the cloud, redesign processes to leverage data, AI and automation and transform finance into a competitive advantage within your business.

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1   MRP, JIT, OPT, FMS?  (link resides outside ibm), Harvard Business Review, September 1985