Have Two Succession Plans

Every business needs two plans of succession.  The primary one permits the owners to retire at a time of their choosing.  It usually appears after the business has matured, can take a decade or more to fully implement, and evolves over the time.

The secondary plan does not evolve.  It must provide a complete operationally efficient protocol beginning on day one.  It is the set of procedures and duties that kicks in in the case of emergency.  An owner dies or becomes disabled perhaps comatose.  A key person is no longer available.

Many small to medium sized businesses lack depth in management.  The loss of the owner, even for a short time, can be catastrophic if not prepared.

The planning begins with understanding the needs and expectations of employees, customers, suppliers, bankers and even competitors.

In the case of death the immediate concerns are:

  • How to announce the news to each stakeholder group.  Each will require assurances of continuation.
  • How to carry on day to day operations.  Banking and especially check signing authority, purchase orders, supervision, sales.

In the somewhat longer term,

  • How to find an executive level replacement
  • How to deal with owner’s equity in the business including bank guarantees.
  • How to replace the vision, the skill and contacts, the research and development

A sickness or accident is similar in some ways but more difficult to manage unless there is a clear return date.  The immediate things at death still matter but the longer term ones may be solved.

Steps to take beforehand:

  • Train employees to cover off other jobs in the business.  (Depth)
  • Have powers of attorney to operate the business.
  • Keeping a journal so someone could pick up where you are on the many projects on the go.  Many owners carry information at a barely conscious level.  Some of it is crucial to operating successfully.
  • Keep professionals in the loop.  Accountants and lawyers can help if they know what has been going on at the strategic and tactical levels.  Some agreements in process can be deferred, others cannot.
  • Have insurance.  Disability, critical illness and life.  Many of the thorniest business problems go away if you can afford the solutions.
  • Know who can help.  That is why competitors are in the list.  Sometimes it is possible to have a mutual aid agreement.  If your estate must sell, they are your most likely purchasers.
  • Have a plan to communicate.  Be sure the stakeholders are fully informed.  Customers, banks, competitors, suppliers and employees have their own interests to protect.  Be sure they are comfortable.

No business can lose key people easily.  If they could they would not be key.  Life is variable, so do not count on things continuing as they are today.  Even the most rudimentary preparation will pay huge dividends at a time when any help will be welcomed.

Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

Contact: don@moneyfyi.com  

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