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Improve your operations and grow your business with resources and best practices from bbsi's business consultants., succession planning for small businesses.

business owners develoing a succession plan

Considering the amount of determination and hard work that goes into running your own business, it can be difficult to imagine passing along those responsibilities, or even the whole business, to someone else. Yet, this is a reality most business owners will eventually face. Having a plan in place to ensure that your business can transition to the next phase of its lifecycle is crucial to ensuring a seamless process when the day comes. Below you’ll find some best practices for successfully planning for your business’s future.

TABLE OF CONTENTS

What is Succession Planning? >>

What is a Succession Plan? >>

How Do You Identify High and Low-Potential Employees? >>

Why Should Companies Have a Succession Plan? >>

Benefits of Succession Planning >>

Succession Planning Best Practices >>

9 Steps for Creating a Business Succession Plan >>

How BBSI Can Help with Succession Planning >>

Prepare for the Future of Your Business with Succession Planning >>

What is Succession Planning?

Succession planning is a long-term plan intended to outline the continuity of employee knowledge and responsibilities over time. This plan is a crucial asset for a company’s evolution and growth throughout its lifetime. By focusing on long-term business goals, succession planning can help you embrace the right mindset for the future. This form of planning is used to embrace existing talent and create a clear path forward for your company. Creating a dedicated plan that supports and encourages your staff will ensure you have the necessary leadership and specialized knowledge documented to continue throughout the lifecycle of your business. 

Jump to the 9 Steps for Creating a Business Succession Plan >

What is a Succession Plan?

A succession plan is a spreadsheet or document that outlines all of the people in your organization, as well as positions that are currently available in the company or will become available as your company grows. The outlined positions must address not just the current state of your company, but also the future state over the next three to five years. 

The plan should include any positions crucial for your company to grow and reach its goals, and which of your employees will fill those roles. It is common practice to list employees who have the potential to take over key roles and numerically define their potential for success in the role by percentage.

With this information, companies can identify talent gaps and recognize employee potential. When employee potential is clearly outlined, companies can take steps to guide employees toward future positions and keep an eye out for how their potential and preparedness will change throughout the years. The plan itself should include a snapshot of an employee based on the company's needs and their individual potential.

Download the Succession Planning Pack

How do you identify high and low-potential employees.

Low-potential employees can be low-performing employees or, in some cases, high-performing employees who may not be interested in advancement. Though people commonly think that low-potential employees are a bad thing, however, that isn’t necessarily true as they often make up around 70% of your workforce . 

High-potential employees are capable of growing into challenging positions. When you identify these individuals, you can look at skill gaps and identify areas of growth to ensure they can meet key needs at a later date. This is important for teaching soft skills and core competencies that can be utilized years from now.

Why Should Companies Have a Succession Plan?

Succession planning is important for all businesses, and especially for small or family-owned businesses because it empowers owners to look comprehensively at the future of their company. Often, a business owner's first instinct is to leave their business to their children. However, multi-generational succession planning tends to have a low success rate, with 40% surviving the transition to a second generation, 13% surviving to a third generation, and only 3% surviving to a fourth or beyond.

Having a succession plan in place ensures your business has dedicated employees who possess the passion and knowledge to continue operations, whether you sell your business or pass it on to your successor. 

Helps Fill Key Management Positions or Replace Owners

Companies often focus on day-to-day operations instead of long-term planning. Some believe they can hold off on replacing key roles until the people in those positions leave, but often that isn’t realistic. Most businesses change and evolve over time. These changes can be in response to market dynamics, or common changes with your employees, like staff moving away or transitioning to other positions or industries. Being prepared for these inevitable changes can make necessary adjustments much easier.

Helps Owners Sell Their Business

When most entrepreneurs start their business, they don’t imagine selling them — but they should. Regardless of how you feel today, you should always keep your exit plan in mind. If you’d like to eventually sell your business for a premium price, you have to make it an attractive purchase for potential buyers. 

Succession planning allows you to build a strong management team and strategic vision, giving you a higher chance of selling your business on the terms you want.  

A good management team and refined processes will help you build a well-functioning operation that attracts prospective buyers and eases the transition to new ownership.

Benefits of Succession Planning

There are several key benefits of succession planning. Let’s explore some of the key ones.

Improves Employee Engagement and Retention with Targeted Career Development

Modern employees prioritize opportunities for growth , and companies that cannot offer career development will have trouble retaining top talent. Succession planning allows you to work with your employees to define their career paths and find opportunities for them as your business continues to grow. Family-owned businesses can offer their employees fulfilling careers with growth potential, but that often comes down to having a great plan in place.

Takes a Proactive Approach to Solving Future Challenges

No matter how hard you work, eventually, your business will face challenges. Personal or family problems, changes in the market, and unexpected staffing changes can all present unplanned bumps in the road. With a succession plan in place, you can be prepared to manage a change before it becomes a crisis. Waiting until the situation demands a response can lead to problems for your staff and has left many business owners stuck in less than ideal situations. Don’t wait for a health crisis, accident, or unexpected move to negatively impact your business.

Improves Company Culture by Creating a Learning Organization

Employees love companies that encourage growth and development , which is even more true among younger generations. Succession planning can create a culture in which leaders find ways to challenge their staff, recognize hard work, and track employee performance. 

It is important to create an environment that encourages, trains and rewards good behavior to lead your company in a positive direction. This will nurture employees who are passionate about learning and career development.

business owner looking at tablet with his team

Gives Leaders Greater Ability to Manage Lower Performing Employees

When an employee isn’t performing to the highest standards, it becomes difficult for management to respond or find the desire to do so. Ultimately, this leaves lower-performing employees carrying on with poor work and higher-performing employees carrying more of the workload.

A good succession plan can help managers find the power and desire to coach their employees and encourage them to improve. This means giving warnings or terminating an employee with multiple offenses, as well as providing clear benefits or incentives when someone performs well. With a good succession plan, you can hold managers accountable, encouraging them to be consistent with employees and continuously check on performance levels.

Helps Companies Promote Internally vs. Hiring Outside

External hiring is common, but it does come with its fair share of added expenses and training. When you promote internally or allow internal employees to step into prominent positions, you already know the person's capabilities. This means you can identify gaps and areas for improvement in advance and put plans in place to help the employee improve.

With an external hire, you can never truly guarantee what their performance will be after the interview process ends. There will always be a slight difference between the person you interviewed and the person who walks in the door on Monday. While external hires can be great, they introduce more variability. 

Internal promotions can help your leaders tap into low and moderate-potential employees to build their talent, so they can take on bigger opportunities down the line. This provides your business with a secure pool of talent and shows employees your willingness to invest in their development. 

Succession Planning Best Practices

The following best practices can help you create a succession plan to lead your company down a successful path, whether you are running it yourself or passing it along to someone else.

Start with Strategic Planning Before Succession Planning

Before creating a succession plan, you need a clear idea of where you want the company to go. This is where strategic planning comes in. Ask yourself where you want your company to be a year, two years, and five years from now. Consider new areas of expansion, areas that might be phased out, and what the future of your company and industry will look like. Look beyond the day-to-day survival strategy, and at your company's future potential instead.

Keep Legislation in Mind During Planning

Laws influence the way you do business whether you want them to or not, and these laws can change. You should plan for existing laws, but be ready to flex if new ones arise or existing ones change. If and when the time comes, you will need to know when the changes or new legislation will go into effect, so you can better plan for them. For example, Colorado has the Equal Pay for Equal Work Act requiring companies to post promotional opportunities internally.  Planning ahead for legal requirements is important and will save you time and compliance headaches. 

Don’t Label Employees “C” Players

In the nineties, companies began labeling low-performing employees as “C” players and removing them from their organizations. But this thought process can be extremely damaging to the culture and the psychology of an organization. Companies should refrain from labeling employees as “C” players and acknowledge how such labels influence how the organization will view and treat them.

Use Competency Mapping and Tools

Competencies are skills, experience, and anything else that can be used to elevate a business or improve workplace culture. Business owners and managers should utilize tools to count their employees' competencies and set up benchmarks to track their progress in areas of growth potential. With these tools, it becomes easier to understand which skills are needed for specific roles and how an employee can grow into them.

Conduct Regular Career Development Discussions and Measure Performance

A good performance management structure is crucial. This means using a method or system for regular feedback, paired with career development discussions. Helping employees identify and actively pursue goals is critical for the organization and individual, but only works when they have regular check-ins with feedback, even if it’s just a confirmation the person is progressing. Holding employees accountable and making development a priority can help them gain a sense of ownership and encourage them to take their own steps forward.

Get started with succession planning and employee career development with our  Succession Planning Pack

Utilize Mentorship

Mentorship is a powerful tool for teaching both soft and technical skills in a comfortable and supportive environment. Most importantly, mentorship is a powerful and emotional experience that allows people to exchange knowledge and build trust. The development that follows mentorship can have lasting, positive impacts that will grow company culture and push your business forward.

Two mechanics working on a car

Keep Succession Planning Confidential

Succession planning involves a significant amount of sensitive information, which is why internal planning discussions must stay confidential. Scoring employee proficiency and identifying areas for improvement shouldn't be public information, as it could negatively impact their growth, opinion of the company, and culture overall. 

Though much of the information will be shared with the individual and used to encourage growth, succession planning must be kept behind closed doors with the exception of the decision-makers involved. Employees should not feel like their areas for development are on display for their peers.

Communicate Career Development Plans to Employees

While you might not want to share every bit of succession planning with an employee all at once, it is important to involve them in the plan. If you identify a candidate for a future role, tell them, so you can gauge their interest. By sharing this information, you demonstrate to employees that they have a team supporting and sponsoring their growth. It also shows there is a clear path for progress , and you want them to succeed. In some instances, it might be appropriate to share this news with the rest of the staff as the employee’s responsibilities and focuses change. 

9 Steps for Creating a Business Succession Plan

Creating your business succession plan can be accomplished with these nine steps.

1. Identify Significant Business Challenges and Goals for the Next 1-5 Years

Before you start succession planning, you need to discuss the future of the company with senior leaders and staff. You should address the overall company strategy and goals you have for the company’s future. This includes new products and services, as well as expansion opportunities or potential partnerships. Determine your company’s next steps, as well as your own, so you can plan accordingly. For example, if you plan on retiring or selling the business within the next few years, you have to start preparing now. Knowing where the business is headed will help you plan effectively.

2. Identify Critical Positions for Business Continuity and Success

After you identify where the business is going next, assess how employees fit into the plan. To determine how staff will play into the future of your company, begin looking at positions important for success and identify their future state. Do these positions exist already? Are they vacant? It is critical to identify what your company will need in order to fill them. 

3. Identify Competencies, Skills, and Institutional Knowledge Critical to Success

After considering the company’s future and critical positions, map out which skills potential candidates need for these roles. Identifying future vacant positions and job requirements helps you prepare for the future your company deserves — one that is built on talented staff.

4. Consider High-Potential Employees and Determine Their Needed Competencies

Talent plays a key role in succession planning, so you must assess your staff and their future with the company. Recognizing employee potential and aligning that potential with the organization’s strategy for the future is important for growth and development. 

A succession planning matrix should be used here and they come in three forms. The matrix can have three boxes, six boxes, or nine boxes. A simple three-box matrix can be enough, but owners who want to focus on a more intense level of detail will benefit from adding additional boxes for their convenience.

Alt text: Succession planning 9-box matrix infographic showing the 9 different levels of employee potential and performance. The x-axis shows performance rankings of low, moderate, and high; the y-axis shows potential rankings of low, moderate, and high. Employers should use the 9-box matrix to categorize each of their employees into one of the potential/performance levels.

5. Create a Succession Planning Template

Once you have assessed the potential of your employees, the next step in the process is to add the employees to a Succession Planning Template . This template helps you identify which employees need to grow into future roles. Ask yourself what skills need to be developed to move your company and employees forward. This template should include critical positions, competencies, high-potential employees, action items, and a general commentary. You should record the information captured during the first four planning steps into a single and simple space you can refer back to in one quick glance.

coworkers discussing career development

6. Discuss Career Development with High-Potential Employees

In order for succession planning to help your company achieve its goals, employees need to know when they are being considered for important positions. Employees are more likely to lean in and pursue necessary growth when you make them aware of their potential future with the company. Sharing this information should occur before selecting employees for succession in case they are not interested in the role you’ve identified for them. It is important to know who is and isn’t willing to advance to ensure you don’t spend time and resources developing employees who don’t want to move into a certain role, even if they seem like an obvious fit.

7. Create Your Talent Pipeline

Your talent pipeline is the path you will use to fill key roles. After identifying your interested internal talent, you may still have vacant positions you’ll need to bring in external candidates to fill . Accounting for this upfront makes it much easier to track your progress toward filling critical positions. Continuously updating your document allows you to stay on track and gives you a snapshot of key employees and their developmental progress as they grow into their future positions. 

8. Document Key Employees’ Institutional Knowledge Before They Leave the Organization

Employee knowledge is a precious resource organizations must make a concerted effort to document and preserve, especially with the increasing number of workers approaching retirement age. The knowledge and skills of experienced employees are critical for minimizing interruptions that come with the transitions.

9. Revisit Overall Succession Plan Quarterly and Annually

For a succession plan to be effective, companies must revisit the plan on a regular basis. Having scheduled discussions about recruiting new talent and promoting employees with potential, noting existing skills gaps, and removing termed employees will help keep your plan on track. 

Succession plans should be consistently revisited and target employee performance should be discussed and responded to, whether that means creating new avenues for career development or addressing poor performance. Analyzing data over time will demonstrate how well your plan is working.

How BBSI Can Help with Succession Planning

At BBSI, we provide you with a dedicated team of professionals to help your company leaders facilitate the succession planning process to ensure your business sticks to its plans and makes progress toward its future goals. Our trusted partners will keep your information confidential and help you identify answers to the questions that keep you up at night .

As we work together, we will continuously revisit your plan to ensure your company stays on track and in compliance with federal and state legislation, while also offering advice for developing and managing talent. Contact your local branch today to see how BBSI can help you with your succession planning and talent development.

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Disclaimer: The contents of this white-paper/blog have been prepared for educational and information purposes only. Reference to any specific product, service, or company does not constitute or imply its endorsement, recommendation, or favoring by BBSI. This white-paper/blog may include links to external websites which are owned and operated by third parties with no affiliation to BBSI. BBSI does not endorse the content or operators of any linked websites, and does not guarantee the accuracy of information on external websites, nor is it responsible for reliance on such information. The content of this white-paper/blog does not provide legal advice or legal opinions on any specific matters. Transmission of this information is not intended to create, and receipt does not constitute, a lawyer-client relationship between BBSI, the author(s), or the publishers and you. You should not act or refrain from acting on any legal matter based on the content without seeking professional counsel.

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All You Need to Know About Small Business Succession Planning

small business succession planning best practices

Small businesses make up a significant portion of the United States economy. According to the U.S. Small Business Administration, they represent 99.7 percent of U.S. employer firms and 64 percent of new private-sector jobs. [1] However, when small businesses are owned by family, it can create complications when planning for a company's future. While many small business owners may be reluctant to hand over control of their business, having a succession plan is key to its future success.  

The Importance of Succession Planning

Business owners need to plan ahead and have an exit strategy for what happens to their business after they retire, or if they encounter unfortunate worst-case scenarios such as severe illness, disability, or death. Without a good succession plan, your family or other heirs might be forced to sell the company under duress and be shortchanged on the value of the business you've built. If there's no clear plan in place for who's in charge of the company, your business might end up directionless and at risk for failure.

Building a successful small business is the work of a lifetime. Make sure that your legacy is secure — and your finances and family are protected — by creating a solid succession plan to decide how to manage, sell, or pass on your business to a new generation of ownership.

We talked with an expert in small business succession planning to find out more about what small business owners need to do starting now to secure their futures.

When to Get Started

As a small business owner, you're often focused on what's happening today, and might be reluctant to grapple with the emotional decisions related to succession planning, such as who to name as the CEO's successor and which family members or employees to sell the company to. But it's important to have these conversations and work through the emotions now, when you have time and flexibility to make careful decisions, rather than put your family and heirs in an emergency situation down the line.

“Statistics bear out that 60-70 percent of small business owners wish to pass along their businesses to the next generation of family members, yet only about 15 percent ever do that," says Eido Walny, founder of the Walny Legal Group, an estate planning boutique law firm in Milwaukee. [2] “The key to understanding that massive disconnect is in the lack of business succession planning. Business succession can't be founded on a wish. Handing over keys one morning is not a plan. There is a lot that needs to be thought through, and the facts bear out that very few business owners give enough thought to succession planning."

Walny says that the worst situation that happens from a lack of business succession planning is when the owner has a medical emergency.

“No one plans for the day a death or disability or even divorce will turn a business upside down," Walny says. “So the best time to plan for those events is well before they become a reality. That is especially true if there are multiple owners in the business. You want to plan so that you are not accidental partners with someone's ex-spouse or even their children."

So when is the right time to start? "At startup. If not then, the second choice is right now. Get a succession plan in place. You'll be happy to have it when you need it eventually. But that time could be tomorrow," says Walny.

Pay Attention to Tax Efficiency

One challenge for business succession planning is that it requires the business owners to adopt a different strategy for running their businesses. For most businesses during normal operations, they try to operate as tax-efficiently as possible by maximizing deductible expenses and minimizing profits. However, this strategy can backfire during the lead-up to selling the business. If you're planning to sell in a few years, it's worthwhile to adjust your tax planning strategy to maximize the value of your business to prospective buyers.

“Most small businesses are run for tax efficiency, which usually means low profit statements," Walny says. “Any business owner knows that low profits does not mean the business is doing poorly. But low profits mean that an outside buyer will not make an offer for the full value — the true value — of the business. Buyers look at historical financials. As a result, good succession planning means that a business owner will stop running the business for tax efficiency and start running the business for maximum value, even if it means higher taxes.

"The results will be a much stronger offer from prospective buyers, even at the expense of tax dollars," Walny continues. "But it takes time to do that and work up the historical financials. So this is another reason why succession planning needs to be done well in advance."

Get Power of Attorney

Keep in mind it helps to put your wishes in writing ahead of time by using the durable power of attorney — a written document that lets you designate a trusted person to act on your behalf in case you become incapacitated by illness, accident, or disability.

A durable power of attorney lets you instruct who will manage and control your affairs while you are incapacitated. As part of making these advance directives for your financial affairs, you can also set up a comprehensive business plan to be enacted by your designated person with power of attorney, to include transfer of assets and business holdings into a newly formed business entity, if you so desire. The benefits include valuation of your business, tax considerations, asset protection, and preparing for the next phase of management.

Watch Out for Estate Taxes

Business succession planning is not only a matter of managing business operations and choosing an ideal CEO-of-the-future; it's also important from a tax planning standpoint.

Depending on the size of your business and the state where you live, estate tax can be an underrated issue for business succession planning.

Business succession planning touches on every vital issue that affects your business and personal finances: taxes, business operations, grooming the next generation of leaders for your company, and securing your family's financial future. It can be a complex and emotionally fraught topic, but it's essential to the future of your business and your family's well-being to have the tough conversations now and create a solid business succession plan.

All of these issues reinforce the importance of creating a business succession plan as soon as possible — but even "today" is not too late. Talk with a professional estate planning attorney, tax attorney, or other professional advisers to make sure your interests are protected — and that your company is ready for a prosperous future without you.

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small business succession planning best practices

Important Legal Disclosures and Information

1. https://www.sba.gov/sites/default/files/FAQ_Sept_2012.pdf

2. https://www.walnylegal.com/

These articles are for general information purposes only and are not intended to provide legal, tax, accounting or financial advice. PNC urges its customers to do independent research and to consult with financial and legal professionals before making any financial decisions. This site may provide reference to Internet sites as a convenience to our readers. While PNC endeavors to provide resources that are reputable and safe, we cannot be held responsible for the information, products or services obtained on such sites and will not be liable for any damages arising from your access to such sites. The content, accuracy, opinions expressed and links provided by these resources are not investigated, verified, monitored or endorsed by PNC.

PNC and PNC Bank are registered marks of The PNC Financial Services Group, Inc. ("PNC") 

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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.

Banner for succession planning template

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

Avoid moments of crisis and lack of leadership by preparing candidates for a planned or emergency replacement.

small business succession planning best practices

Ivan Andreev

Demand Generation & Capture Strategist

Ivan is a dedicated and versatile professional with over 12 years of experience in online marketing and a proven track record of turning challenges into opportunities. Ivan works diligently to improve internal processes and explore new possibilities for the company.

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Do you think succession planning is just for family businesses or for business owners who are close to retirement? Think again.

Whether retirement is 30 years away, just over the horizon, or not in your game plan at all, a succession plan is vital to ensuring the continued success of your business.

A good succession plan can help:.

  • Transfer ownership when the time comes
  • Maintain your lifestyle in retirement
  • Provide for your heirs financially
  • Prepare the business to handle unexpected events

Why is a succession plan so important?

Life happens—and unless you have a plan to deal with the unexpected, the business you worked so hard to build could crumble if you become disabled, die, get divorced, or decide to split with your business partner.

Think of a succession plan as peace of mind for the business you’ve worked so hard to build.

In this guide, learn how to develop a succession plan that works for your business.  

Some items covered include:

1. Decide how to exit your business. Should you:

  • Transfer the business to your heirs
  • Sell the business to your business partner/s
  • Sell the business to a key employee
  • Sell the business to an outside buyer

2. Conduct a business valuation

Even if you aren’t planning to sell your business, conducting a business valuation has many benefits. It helps you develop a retirement income strategy, properly value future owners’ shares, and purchase adequate insurance for protection planning. It can even make it easier for your business or potential buyers to get loans or attract investors.

3. Prepare for the transition

The transition period to new ownership is a vulnerable time for a business. Prepare both your successor and your business for a smooth hand-off.

4. Review your plan regularly

Creating a succession plan is a big accomplishment, so give yourself a pat on the back. But don’t just file your plan away and forget about it. Over the years, key employees may leave your business, family members may lose interest in taking the reins, and your own plans for your future may shift. Reviewing your succession plan annually with your team of advisors will help ensure a successful and seamless transition — no matter when or under what circumstances it happens.  

Covering Your Back: The Buy-Sell Agreement Whether you’re launching with one partner or 10, the buy-sell agreement protects stakeholders from sticky situations that could rock the entire boat.

7 Legal and Financial Steps to Closing Your Small Business Exiting a business requires filing paperwork to officially dissolve your business with the state and taking care of other legal and financial formalities.

Copyright © 2023 SCORE Association, SCORE.org

Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.

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Business Succession Planning: A Step-by-Step Guide

business succession planning

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.

What Is a Succession Plan?

Why is business succession planning important, what is succession planning in hr, the business succession planning process in 5 steps, business succession planning best practices, succession planning template, succession planning tools.

  • Create a succession plan with performance management software 🚀

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.

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.

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

performance software

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.

kpi template for succession planning

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.

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.

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)

hr audit checklist

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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Engaging in Succession Planning

Succession planning is a focused process for keeping talent in the pipeline. It is generally a 12- to 36-month process of preparation , not pre-selection .

Overview Business Case Factors to Consider Potential Obstacles Components of Great Programs Additional Resources

All organizations can benefit from the principles of identifying crucial job skills, knowledge, social relationships and organizational practices and passing them on to prepare the next generation of workers, thereby ensuring the seamless movement of talent within the organization. 

Many business leaders and HR practitioners believe that succession planning is a complex process and a practice restricted to the largest organizations with the most sophisticated organizational development departments. On the contrary, succession planning can be of great value to smaller organizations that have fewer resources available for knowledge management programs and the formal, structured development of employees. See  Succession Planning Is Easier Than You Think .

Effective job design, varied internal development opportunities and smart organizational structure are important practices to promote the achievement of organizational objectives while creating an environment that promotes employee engagement and retention. The convergence of the organization's needs and the employees' interests can occur in succession planning because of its wide scope and open process.  See  Rebuilding the C-Suite .

This article will discuss:

  • The business case for succession planning.
  • Factors to consider when designing a program.
  • Potential obstacles to implementation.
  • Characteristics of great programs.

Following are a few terms surrounding succession planning processes:

  • Training. The preparation of an employee to perform the tasks required for his or her current role.
  • Development. The practice of equipping an employee (or group) for future roles and responsibilities.
  • Career planning. An employee-centered practice of identifying the interests of the employee and assisting that individual, as well as providing personal development options consistent with his or her talents and interests.
  • Career management. An organization-centered practice of creating jobs and organizational structures that promotes the achievement of business objectives.
  • Replacement planning. A shorter-termed practice of identifying replacements for personnel in key operating functions.
  • Succession planning. The future-focused practice of identifying the knowledge, skills and abilities to perform certain functions and then developing a plan to prepare multiple individuals to potentially perform those functions.

Business Case

Reasons for engaging in succession planning include the following:

  • Adapting to demographic changes and talent scarcity.
  • Identifying skill gaps and training needs.
  • Retaining institutional knowledge in a knowledge economy.
  • Boosting morale and retention by investing in employees.
  • Replacing unique or highly specialized competencies.

Adapting to demographic changes and talent scarcity

Demographic shifts will create intense competition for talent—perhaps more rapidly or slowly than anticipated, but inevitably. Candidates in the labor pool will likely lack experience and many core skill sets required for crucial positions. Harvesting critical organizational knowledge so it can be shared with subsequent generations of workers will be crucial.

Business and HR leaders view the skills shortage as a top concern that needs to be addressed. The workforce simply does not have enough workers and skilled candidates to fill an ever-increasing number of high skilled jobs. See  SHRM Research: The Global Skills Shortage .

These trends, combined with the increasing retirement of baby boomers, present opportunities for comprehensive succession planning to fill the upcoming shortages in talent.

Identifying skill gaps and training needs

The process of articulating necessary skill sets and competencies for key positions yields the added benefit of identifying skill gaps and training needs in the existing population. Interventions such as cognitive and behavioral training programs can be developed during the planning period and customized to the particular learning needs of the target group.  See  The Training and Development Landscape Report .

Retaining institutional knowledge

More employees are now hired and paid for their thinking rather than for their labor. This means that what we know is likely more important than what we do . The entire concept of knowledge management focuses on identifying, harvesting, archiving and retrieving organizational knowledge. SHRM research on preparing for an aging workforce has found that less than 40% of HR professionals said their employers were analyzing the impact of workers over the age of 55 leaving their organizations in the next 10 years. See  The Aging Workforce and How to Make Your Organization Retirement-Ready .

Imagine the reductions in learning curves for critical positions that could be achieved if much of the tacit knowledge—that gained by experience—were passed from one generation of workers to another. With succession planning, that sharing can occur concurrently between the worker and the potential successor, giving the successor the unique opportunity to gain useful skills and knowledge without a long, on-the-job learning curve. In addition, succession planning substantially decreases the need for formal training programs—and the resources they consume—to recreate the learning opportunities. See  SHRM AACSB Leadership Development Report .

Boosting morale and retention

An organization's visible investment in its human capital can be a tremendous boost to employee engagement and morale. According to Herzberg's theory of motivation, meeting the personal growth, achievement and recognition needs of employees promotes motivation. With proper design and consideration given to the group demographics, succession planning can be structured to deliver all three motivators. See  How to Create a Recruiting Strategy: Buy, Build, and Borrow .

Replacing highly specialized competencies

Although the conventional wisdom is that no one is indispensable, replacing a leader or contributor with highly specialized knowledge or competencies is costly and time-consuming. Succession planning mitigates the effects of a sudden or unanticipated vacancy in a principal position.

Factors to Consider

Regardless of its scope, any succession planning program is enhanced with the consideration of a number of factors:

  • Organizational foundations.
  • Scope of succession planning program.
  • Implementation team.
  • A match of talents to tasks.
  • Job design and skill complements.
  • Standards and metrics.
  • Plans for successful transitions.
  • Alignment of existing practices.
  • Effective use of technology in support of record keeping.

See  Building Better Leaders .

Organizational foundations

Like most HR programs, succession planning cannot be performed in a vacuum. Well-constructed foundation components should be in place long before succession planning programs can be implemented.

Each of these steps lays groundwork for succession planning. For example, jobs can be designed with complementary or layered skill sets. An open organizational structure can be designed to reduce the barriers that prevent cross-functional learning. Candidates can be viewed in light of potential functions beyond the immediate vacancy. Through assimilation, new employees can learn the organizational culture from the outset. Once these processes are secure, the organization can identify, based on strategic objectives, key positions that are best suited to succession planning. See  Succession Planning Policy.

Scope of program

Succession planning can go in two main directions: choosing by position or by person. A program that does both will ensure the greatest likelihood of addressing the primary purpose—keeping talent in the pipeline. Sometimes the talent resides in a particular individual who has numerous skill sets that would be valuable in a number of positions. Sometimes, certain positions themselves serve as good "training grounds" for future roles. In either case, an individual employee is selected, so that person should be:

  • Comfortable with change.
  • Interested in learning new skills.
  • Accepting of uncertainty.
  • Adaptable to multiple work environments and leaders.

Identifying positions to include in a succession planning program is more of an art than a science as it is certainly an organization-specific process. However, considering the following positions may be beneficial:

  • Positions central to strategic goals or to a competitive advantage (which have the greatest effect on the consumers' buying decision—think of a housekeeper in a hotel or an architect with specialized and uncommon knowledge in a restoration business).
  • Positions that are organization-specific or in a highly specialized industry (roles in the judiciary system or technicians in titanium mining).
  • Positions of influence within the organization (those that influence resource allocation or decision-making).
  • Jobs with long learning curves (assistant to a senior leader, specialized equipment troubleshooter, contract negotiator).
  • Positions in which experiential learning is the main knowledge acquisition method (banquet chef, home inspector, case manager).

See  What is a 9-box grid?

Implementation team

Some areas of expertise and commitment will improve the success rate of the program—such as in HR, organizational development or among other leaders. Knowledge of job design concepts, effective performance management practices, training and development initiatives, and adult learner and mentoring programs gives the program coordinators a good foundation for a well-rounded program. Having a receptive organizational culture (silo-free, accepting of change, with a learning-organization mentality and a focus on active performance management) is also essential to achieving program objectives. 

Matching talent to tasks

Sensible job development requires that incumbent employees be suited for a series of positions. Fulfilling that objective entails matching individual talents with required tasks. A job analysis that reveals the knowledge, skills and abilities required for each role allows for mindful determination of practical succession steps. Identifying skill complements allows for easier transitions between roles, creates options for placement, reinforces desired performance of those skills and supports development-centered (i.e., future-focused) staff training. See  7 Steps to Developing a Replacement Plan .

However, remember that succession planning differs from career pathing in that it should equip incumbents with a wide range of skills to prepare them for a number of potential roles, in contrast to fast-tracking, which moves them through a linear path of jobs.

Planning the stages of a succession plan requires an understanding of job design concepts. Understanding specific position attributes allows the program coordinator to perceive the relationship between the incumbent's success in one job and the potential for success in the next job, as well as the individual's appropriateness for a role based on personal preferences. Specialization and task variety, task identity, task significance, autonomy, span of control, independence and interdependence, and job pace are all salient position attributes to consider.

Standards and metrics

Establishing standards and metrics (what success looks like and how it will be measured) is critical for determining whether a succession planning program has been effective. Deciding in advance what constitutes a successful program may include finding methods to gauge employee satisfaction with personal development, management satisfaction with employee performance and job readiness, the extent of goals achieved, and the time to full-function attainment.

The in-advance nature of succession planning significantly enhances the transition for all parties. The employee, new leader and team have the opportunity to interact and develop a work style. There is also an overarching culture of employee development as an investment in the interest of the organization as a whole, as well as a practice of ongoing transitions and shared expertise.

Succession planning cannot be accomplished as a stand-alone process. The principles that support succession planning must also influence the selection process and performance management. Identifying roles eligible for succession planning requires forethought during the selection phase to ensure that the right person, with development potential, is chosen. Future-focused performance management practices that highlight personal initiative, skill acquisition and development are most suitable.

Record keeping and technology

In larger organizations where succession planning may cross departmental, business unit or even substantial geographic boundaries, the collection and organization of records associated with the process can pose considerable challenges.  See Leveraging Data for People Decisions from Recruitment to Retirement .

To manage this - particularly in the early stages - administration of a succession planning program can be limited to:

  • Identifying portions of the organizational chart with target positions.
  • Creating informal charts showing skill complements and job design commonalities between target positions and potential feeder positions.
  • Maintaining summary skill set and interest resumes of incumbents in something as basic as a spreadsheet.
  • Creating a Gantt chart of development assignments and program milestones for project planning.

Once a program has a track record, it may be possible to make the case for acquiring software applications that compile succession planning data and integrate it with existing human resource information systems (HRIS). Such systems can even generate sensible succession planning avenues based on organizational structure. Of course, the quality of the data retrieved is directly related to the quality of the data entered and maintained, so records retention should be designed with this anticipated use in mind.

Potential Obstacles

Depending on the scope of the project and the organization's culture and readiness, the following obstacles to a formal succession planning program may exist. Consider them when planning and marketing the program.  See  Leadership Succession Risks and What HR Can Do About Them and The Art of Leaving: The Impact of the Incumbent’s Departure on CEO Succession .

Resistance to change

Succession planning is one initiative that can be done incrementally. Enhance existing selection and performance management programs to show the value and importance of building internal bench strength. Introduce the ideas of waning skill sets in the labor market and the existence of internal talent that can easily be developed. Start small, maybe with one major function, to create a success story and build credibility and agreement.

Lack of support by persons of influence

If outspoken naysayers get the floor, succession planning can be a tough sell. Find the source of their skepticism, and present facts and figures to support the program and neutralize issues such as these:

  • Concerns that jobs are at risk.
  • Worries about costs or lost productivity.
  • Tendencies to promote knowledge-hoarding rather than knowledge-sharing.

Organizational silos

One way to address silos in the context of succession planning is to start with a function that is partially shared among one or more business units. Find leaders who believe in knocking down silos to see if they have jobs that could be feeders into another area. Explore the possibility of temporary assignments in other areas that could be used to develop employees for future roles.

Equal employment opportunity

Succession planning involves preparing employees for possible future roles; it is not pre-selection. If the succession planning program is rooted in diversity and equal employment opportunity, the ultimate selection of employees to fill new roles will reflect that focus. During the succession planning process, choose positions generally filled from within, work to identify a number of potential feeder roles and incumbents, and ensure everyone knows that succession planning is intended to match the organization's needs with the employees' interests and that it makes no promises. See  Top Corporate Roles Are Rarely Held by Women .

Weakness in performance management

If the organization has not had a consistent practice of giving honest performance feedback, not only is that an obstacle for succession planning, it is a bad business practice that needs immediate correction. Educate managers about the legal and ethical reasons for giving honest feedback. Employees deserve to know when their behavior or performance is meeting expectations. They also deserve the chance to improve their behavior or performance when it does not.  There are four essential factors in an effective performance management program:

  • A feedback process that is continuous and timely throughout the review period, so employees know how they are doing and what is expected.
  • A dialogue that includes performance feedback measured against clear and specific goals and expectations established at the outset of the performance management cycle.
  • A documented process for acknowledging the outcomes of the performance review process between the manager and the employee.
  • A two-way individual conversation between the manager and the employee (preferably face-to-face) at least once a year.

Manager resistance

To some extent, a succession planning process involves asking managers to prepare to let go of their best performers. Approach that challenge by:

  • Fostering a sense that keeping talent within the organization, wherever it may migrate, is the goal.
  • Holding managers accountable for developing their subordinates and recognizing those who excel in that area.
  • Educating managers that employees will recognize as managers-of-choice those who invest in their subordinates' development and that they will likely have their choice of internal candidates as job vacancies arise.

See  Succession Planning Training for Supervisors.

Lack of time

This issue represents the age-old conflict between time spent and time invested. Consider the amount of time spent recruiting, selecting, training and managing new employees, not to mention the assimilation learning curve. Compared with those time-consuming activities, the investment in developing incumbents' skill sets does not seem so daunting. Time invested in succession planning prepares the employee for a wider array of responsibilities within the organization.

Rewarding the wrong behavior

Many employees seem reluctant to share expertise with others. Often their self-esteem is linked to being the local expert. However, it is in the organization's best interest to reward employees who willingly share their expertise and demonstrate interest in learning new things.

Components of Great Programs

To help ensure the succession planning program meets the organization's needs and expectations, a number of components are worth considering for inclusion. See  Retool Your Succession Planning to Meet Future Challenges .

Prepare leaders to participate

Cultivating high-level commitment and support will have a positive influence on the succession planning program. Succession planning involves not merely making time to provide learning opportunities for employees; it also involves leading the culture toward lowering barriers and creating a learning organization.

Align the program with business objectives

When selecting job functions for the program and methods for the transfer of learning, be sure to align them with business operations, practices and schedules.

Use a variety of methodologies

Adult learning occurs in different ways. Use a combination of techniques, including mentoring, cross-training, job enlargement or enrichment, job shadowing and case studies, vestibule training, and classroom training.

Incorporate in performance management

Employee interest in succession planning, willingness to be a part of it and efforts toward achieving goals associated with it should be part of performance management. Incorporating relevant goals in development plans is relatively easy.

Promote a long-term view

Succession planning is a 12- to 36-month process. Encourage team members and leaders to think long-term and big-picture during the program development. Reinforce the concept of preparation, not pre-selection.

Think of succession planning as creating a "farm team"

The sports analogy resonates with employees and managers alike. Responsiveness to new situations (including unexpected ones) and resilience in the face of conditions in the external environment are traits of successful organizations. Having all your knowledge or skill "eggs" in one person's "basket" is never good business practice.

Look beyond the obvious

Good candidates for succession are not necessarily already in traditional feeder positions. Look far and wide for employees with complementary skill sets who may be appropriate for the program.

Plan for knowledge transfer

Succession planning includes identifying skills and competencies next-generation employees will need to function well in key positions. Developing systems to identify and transfer that knowledge and shorten learning curves should be a primary objective. Partner with a trainer to determine the best way to promote learning.

Look at succession planning in layers

Layering competencies achieves many of the same benefits as developing skill complements for succession planning paths. Even if certain roles are not well suited for formal succession planning, the incumbents may be candidates for acquiring layers of related skills. Consider including them in a sort of "a la carte" learning along with the succession planning participants.

Job development is not limited to promotion

Succession planning might include job expansion in addition to job progression. That is, if traditional step-by-step succession planning does not work for certain functions, consider individual skill development opportunities such as enrichment, enlargement and cross-training as sources for enhancing employee skill sets.

Additional Resources

Succession planning training for supervisors

Succession Planning Policy

Career Development Plan (Succession Planning)  

Toolkit: Developing Organizational Leaders

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The Ultimate Guide to Succession Planning

Katrina Kirsch

Published: September 30, 2021

At one of my first jobs out of college, my manager admitted that my professional growth "wasn't a priority." I knew I wasn't in a leadership role that required succession planning, but the admission still stunned me. Without support for career development, I wound up leaving the company.

business leader discusses succession plan

This situation may seem dramatic, but it points to the importance of having a succession plan in place. Of course, senior leadership roles take precedence because these can create a larger vacuum if the position is left unfilled. But succession planning can (and should) extend to all leaders across a company.

→ Click here to download leadership lessons from HubSpot founder, Dharmesh  Shah [Free Guide].

Developing a succession plan can set your company up for smooth transitions when leaders resign or accept a promotion. It can have a major impact on employee morale and can position your team to skillfully handle future business challenges.

But you don't want to wait until you absolutely need a successor. At that point, you're scrambling and may choose the wrong person. Let's look at the ins and outs of succession planning so your team is prepared for any transition.

What is succession planning?

Succession planning is a strategic process for identifying high-potential employees and taking steps to prepare them for future leadership positions. It helps your business develop and retain the talent pipeline so you can quickly fill vacant leadership roles.

Some succession plans look ahead 12 to 36 months for when a leader retires, steps down, advances, or leaves. Others, including CEO succession plans, look years into the future to secure the next several generations of leaders. We'll cover the specifics of C-suite transitions later on. But all succession planning has similar benefits for thinking ahead and identifying what you want in a successor.

Why is succession planning important?

In the Global Leadership Forecast 2021 report, 11% of surveyed organizations said they have a "strong" or "very strong" leadership bench — the lowest reported in the past decade.

The benefits of strong leadership are apparent. It improves employee turnover, ensures the execution of goals, and contributes to the company's survival. So if a crucial leader leaves, a succession plan can help ensure the role is filled and your company continues to thrive. But that's not the only upside.

Benefits Of Succession Planning

  • Finding and developing people for future leadership roles allows you to promote from within. These employees have organizational knowledge and internal relationships that outside hires lack.
  • Letting employees know that you're investing in them is a huge morale boost. It can also increase motivation and loyalty to the company.
  • Training employees for leadership roles forces you to identify the skills, knowledge, practices, and relationships needed for each role in your succession plan. This can attract new talent, retain current employees, and keep you competitive.
  • Hiring for highly specialized roles isn't easy. Succession planning helps you find people with unique competencies when it comes time to replace the current employees.

Currently, leaders looking to develop skills outside of their daily work want more coaching and development assignments, in addition to assessment and formal training. Succession planning is the perfect way to formalize training for both present and future leaders.

Succession Planning Best Practices

Succession planning isn't simple. But if you consider these best practices as you choose successors, your company will be well-equipped to manage transitions and unexpected changes.

Formalize a Plan

The earlier you set a succession plan, the better. You don't want to risk a leadership vacuum that leaves teams feeling unsupported. That can quickly waterfall into an entire team or department leaving, especially if the leader is particularly strong and has a close relationship with their direct reports. Once you have a succession plan, write it down. Then, make it clear there's a plan in place for when the inevitable transitions happen.

Stay Dynamic

Volatility is common at every company. People move cities, find new jobs, and retire. Your succession plan should be able to adapt to change. Instead of creating a plan and only revisiting it when the time comes to fill a role, see the plan as an evolving process that needs to be constantly updated.

Evaluate Talent

Part of a fluid succession plan is taking the time to assess employees' interests, skills, performance, and opportunities. This can be done through 360-degree feedback, weekly check-ins with managers, informal training, or tools like the nine-box grid. The goal is to get an idea of people's strengths and weaknesses, career goals, and growth opportunities so you know who may be the right fit for leadership roles.

Communicate Openly

Communication builds trust, which makes it easier to set expectations and ensure everyone is on the same page. As you build a succession plan, have honest conversations with employees. Find out where people want to be, and tell them where they're currently at. The whole point is to make your plan a reality, and successors will appreciate your openness when the time comes to offer them a role.

Make Diversity and Inclusion a Priority

Companies with women in leadership roles experience almost 50% higher profit and share performance. And since women, especially women of color, have been most affected by the pandemic , it's wise to consider gender ratios in any succession plan — including the 2SLGBTQI+ communities.

Succession Planning Example

When asked, a whopping 61% of organizations said they didn't have a direct report who could step into their CMO role tomorrow. That's a bad sign for C-suite succession plans. Without a strategy to replace leaders, a company can quickly go downhill.

To avoid chaos, here are a few examples of how succession planning can play out:

McDonald's Smooth CEO Succession

How does a multi-billion dollar company thrive after losing two CEOs in one year? They had a concentrated effort to develop high-potential employees and created a backup plan for their succession plan.

Coca-Cola's Failed CEO Succession

The repercussions of a poor succession plan can affect a company for decades. See the implications of Doug Ivester's term as CEO and the stakeholder concerns that caused his resignation after two years.

Succession Planning Steps

Succession planning example

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1. Make a plan for your plan.

This step is all about defining the goals of your succession plan and aligning with everyone involved. For some companies, this will mean meeting with your board to outline strategic priorities. For others, it will require meeting with senior leaders to define what you're looking for in a successor.

You'll be ready to move on to the next step once you:

  • Define the roles, skills, core competencies, and experience required for a successor.
  • Gather information and feedback on the above from your team or experts within your network.
  • Forecast your company's needs. Consider turnover trends, retirement dates, compensation strategies, and management training.
  • Update your job descriptions and any leadership models to reflect the information you've gathered. You want to be clear about your expectations before looking for candidates.

2. Identify potential candidates.

Using the succession profiles and job descriptions you've created, you're ready to seek out candidates. Make sure your approach is easy to repeat and introduces as little bias as possible. It can be helpful to get support from the HR team, who can share the tools needed to engage candidates and help facilitate the process.

To identify candidates, you can:

  • Look for leaders who develop others, follow through on projects, take action to support the company vision, and have strong leadership skills.
  • Get insight into each candidate's goals, disposition, and potential by holding interviews, creating surveys, and setting up focus groups.
  • Ask people for ideas on how to improve succession and leadership to get buy-in and discover who's engaged with the process.

3. Inform candidates.

There's a great debate on whether or not companies should let employees know they're succession candidates. But informing people of their potential will not only motivate them—it will prevent them from wondering about their future with the company. A great candidate may jump ship if they're in the dark and think they can find a better opportunity elsewhere.

Instead, communicate your intentions about the positions, people, and planning. Just keep your expectations incredibly clear on the included roles and people involved.

4. Set up professional development efforts.

Your company likely has programs in place for onboarding and training employees. But development is about creating opportunities for people to get experience beyond their current role and skillset. This is especially important for team members who can get caught in a specialist silo.

Once you identify candidates who you want to develop, you'll want to figure out the specific skills and knowledge they'll need to move to the next level. This often involves an individual development plan , continuous feedback, mentoring or coaching, formal training, and open conversations between the employee and their manager.

5. Do a trial run.

As potential successors accelerate their growth, they'll become true contenders for leadership roles. This is the ideal time to start trial runs to test their knowledge and expose them to various aspects of a position. Exposing candidates to real-world situations can highlight what effective leadership looks like and give them insight into overall company goals.

There are a variety of ways to get candidates involved, just choose the method that makes the most sense for the role.

  • Job shadow a senior leader to learn about their day-to-day tasks
  • Take on responsibilities when their manager is away
  • Invite them to sit in on higher-level meetings
  • Bring them into discussions on strategy, execution, or company forecasting
  • Involve them in the hiring process for junior candidates
  • Give them more responsibility on projects or involve them in cross-functional work

6. Adjust your hiring strategy.

Eventually, the time will come when you extend an offer to a potential candidate. And you'll need someone else to fill their role. Luckily, the successor can use their new leadership skills to help interview or train the person filling their position. This can be an employee a few levels down or a new hire.

That's why it's important to adjust your hiring strategy to account for successor's roles. Without them, your plan won't go as smoothly and their team will likely be scrambling to fill the gap.

7. Implement the plan.

Succession planning is a complex process with multiple short- and long-term layers. But eventually, it will be time to make the transition. Make an announcement and celebrate the succession. This will show employees that your company prides itself on strong leadership and has a plan for everyone's career development.

Sometimes, a more gradual transition is needed. Family businesses often struggle with smooth succession planning because of familial relationships, emotions, and intertwined histories. In this case, a clear succession plan based on business needs is exceptionally crucial to ensure the company's continued success

CEO Succession Planning

Only one in three CEOs rank their company's leadership quality as "very good" or "excellent." That's a low score for such a high-stakes business priority — especially considering the majority of CEO successors are internal hires.

Harvard Business Review (HBR) ranks CEO succession as "arguably the most important decision a board can make." Replacing a CEO needs to involve a long-term, well-devised plan that's linked to both short and long-term company priorities.

CEO succession planning can follow similar steps to employee succession planning, but there are specific considerations for this top-level role. HBR outlines the following tips for developing a CEO successor:

  • A candidate's competencies, personal attributes, and experiences need to be connected to business priorities. A charismatic senior leader may seem like the top pick, but a company may need a successor with expert-level technical skills in addition to social skills.
  • Think several generations ahead instead of focusing on the immediate successor. Succession is a long game, so you want to position it as a continuous process to develop top talent.
  • Identify seven potential CEOs in your company across all generations. This can take the stress off of each CEO transition and help keep your talent pipeline top-notch.
  • Train CEO candidates through a combination of on-the-job experience, executive coaching, education, mentoring, and cross-functional training.

Developing talent to take on the CEO role will require time and effort from high-level stakeholders. But it's absolutely worthwhile to prevent the vacuum this leadership role can leave if succession is poorly managed.

If a board is involved in the process, HBR recommends using board meetings to combine strategy sessions with talent development. That way, stakeholders can make sure strategy changes reflect the skills needed for potential successors.

Employee Succession Planning

Succession planning extends to employees in all roles across a company. Viewing it this way, rather than saving succession plans for senior leaders, helps you identify high-potential employees at all levels. You can then take steps to develop them into leaders who are able to take on additional responsibilities when a role opens up.

When looking for successors, keep an eye out for employees who are interested in learning new skills, are comfortable with change, can adapt to uncertainty and new leadership, and can manage various work environments. All potential successors should be motivated and engaged in the process because they have a chance to grow their knowledge and take on more challenging, rewarding roles.

When you see a path for an employee's growth, they'll see it too. So the next time a key leader steps down or a new director position is created, you'll know just the right people to recruit for the role.

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Successful Succession Planning in 2021 (The Ultimate Guide)

Learning and Development | 10 Min Read

Successful Succession Planning in 2021 (The Ultimate Guide)

Table of contents, there is no success without a successor, says management guru peter drucker..

Yet, many businesses are not receptive to having a succession plan . This apathy stems from either by delaying the inevitability of their retirement or the sheer reluctance to let the next generation assume leadership positions. Imagine a situation where a potential employee in a critical position leaves abruptly, or an unforeseen circumstance forces a key leader to retire. The absence of a successor or a robust succession plan will create a domino-like effect, leaving leadership gaps all along the succession line. It will jeopardize the establishment’s future besides diminishing its legacy. Without an anointed successor, the company may not have a rescue plan to ensure business continuity. 

Finding a rightful successor for business continuity has been an ongoing part of humankind’s existence. Be it succession in monarchies across the globe in ancient history or the succession to crucial business roles in an organization now – succession planning is a recognized motto that should be embraced by all. 

No defined protocol covers all the details or points out a path best suited for planning your succession. Companies devise policies and processes they deem fit, considering the bigger picture. And somehow, this cavernous content often overwhelms and confuses those involved in succession planning.

So, here’s the ultimate guide book to succession planning that works. This book will familiarize you with and reveal some of the most critical components of succession planning, enabling you to navigate this valuable strategy and save you from future disruption. It will also lay the fundamental groundwork for understanding and prioritizing your organization’s current and future requirements.

This refined knowledge is all you need to get started on a succession planning model if you’re still contemplating it. 

In this comprehensive guide, we’ll cover: 

Chapter 1: What is Succession Planning

  • Chapter 2: The Types of Succession Plans

Chapter 3: Objectives of Succession Planning

  • Chapter 4: Succession Planning Importance 

Chapter 5: Disadvantages of Not Having a Succession Plan

  • Chapter 6: Who Needs Succession Planning
  • Chapter 7: Succession Planning Process

Chapter 8: Succession Planning Tools

Chapter 9: case study.

  • Chapter 10: Frequently Asked Questions
  •  Conclusion

Let’s begin!

Succession planning is a strategically tried out process of identifying the next generation of leaders who can ensure business continuity when key leaders move on to new opportunities, retire or pass away. It is a means of preserving the company’s future and stakeholders associated with it.

By identifying possible successors for crucial roles, honing and nurturing their talent, and ensuring they seamlessly fit into the organization’s structure, companies future-proof themselves against the most visible and unforeseeable odds. 

But succession planning is not done on a whim. It is orchestrated as a well-structured step-by-step process that combines regular activities and ongoing procedures to comprehend and evaluate potential employees as future leaders. Various companies ensure that the succession plan is adhered to periodically and is adapted, considering the evolving workforce. After all, it is ideal for mitigating risk and building value. 

Technically, succession planning covers the senior-most positions in the company’s hierarchy, but companies should also consider critical roles along the various stages of the corporate ladder. 

Employee development is also integral to succession planning. It builds a high-level of engagement in the high-potentials who desire achievements and career advancement. Companies also undertake a succession planning model to anticipate the skill set of their talent pool.

Chapter 2: Types of Succession Planning

Each business structure will require a different type of succession plan. for example, sole proprietorships and partnerships, the owners and managers can make decisions on succession rather freely, whereas a corporation with a board of directors, will need to follow the formalities of the corporate bylaws and rules., david reischer, esq. attorney & ceo of legaladvice.com.

There is no one-size-fits-all approach to implementing a succession plan. There are various types of succession planning  models that a company can implement at all organizational levels. It might be to fill in an inherent leadership position that employees look up to in an organization or find an ideal board member replacement. A succession plan is placed at all levels of the organization. 

But, there are broadly two types of succession plans prescribed by experts. They include-

two types of succession plans

If followed in an orderly manner, they ensure minimum impact to operations and functionality in the long run. It is an ideal way of planning for succession across several levels, including business succession planning, CEO succession planning, management succession planning or employee succession planning in a given organization. 

Let’s explore them in detail.

small business succession planning best practices

1. Leadership Succession Planning:

To minimize the effects of sudden instances or to have a back-up when a key leader puts in their papers, a l eadership succession plan is incorporated to ensure smooth operations. It involves analyzing and evaluating specific skills or competencies in a shortlisted talent within the organization to take the helm appropriately. It is undertaken for senior executives such as Vice Presidents, CEO, CMO, CFO, COO, Directors and board members to replace dormant members or fill in the committee expertise and skill gaps.

*Two types of leadership succession planning

   A. C-Suite      B.   *Board Members

small business succession planning best practices

2. Non-Leadership Succession Planning:

HRMs can also utilize succession plans for specialized blue-collar or white-collar employees in niche roles under employee succession planning, staff succession planning, workforce succession planning or managerial succession planning categories. These niche roles may not only be mission-critical but are also difficult to replace. Hence, a company must be prepared for the same with a succession plan that is facilitated via cross-training processes and individual- and team-work goals, aligned with the department or organizational strategies to find viable successors.

* Type of Non- Leadership Succession Planning

   Critical Roles

Why does one bother with a succession plan? Why is it imperative to create a plan early on in the setup? 

Apart from the fact that it positions your leadership for success and helps prepare for the unknown, here are some key objectives of succession planning in an organization that bring more perspective to the entire process.

Ensures Continuity

One of the goals and objectives of succession planning is to ensure all-round business continuity effectively. Building a leadership pipeline by shortlisting or developing the skills needed to maintain a forward-looking trajectory for your company automatically makes it future-ready. It ensures that you are less likely to rush into making wrong decisions during crises.

Succession Planning Identifies Critical Positions in an Organization 

A perfect objective of succession planning in HRM is to identify mission-critical frontline positions crucial to a company’s success. C-suites aren’t necessarily the only significant positions. Middle-management and market vulnerable roles such as sales are equally important in many companies. With a succession plan, companies can outline a defined structure with role-specific job descriptions and strategic contributions that offer clarity to the executives and board members. Concurrently, you also identify obsolete or declining positions within the organization. 

Underlines the Organization’s Competency Levels 

Another succession planning strategic objective is implementing competency mapping criteria in the organization. When you’re eyeing sustenance and growth in a competitive environment, critical competencies help you understand the attributes already possessed by your organization. It offers a detailed understanding of talent competencies that is to be recruited, promoted or developed for long-term stability. Competency mapping is a comprehensive matrix that is practical and worthwhile when planning for succession.

Identifies Potential and Promotes Development

Not all employees are leaders. However, their talents can be honed to ensure they have the desired qualities to meet, if not exceed, business demands.

Hence, succession planning’s smart objective is to understand their strengths and vulnerabilities, enabling HR to identify existing employees’ latent talent or untapped potential. Such insights enable the management to initiate functional cross-disciplinary training, mentoring and skill development for the designated employees to enhance their existing capabilities. This initiative ensures a better understanding of the talent pipeline available internally while creating awareness of the current individuals’ strengths. It also keeps the company a step ahead of its talent needs. 

Gives Valuable Insight into Workforce and Departments 

High-potential identification is the first step to any succession planning exercise. To begin with, HRs must gain valuable insights. For example, which employee is nearing retirement? Is an individual donning several hats? Is that employee a perfect asset and, therefore, must be retained? Which employee is a misfit and needs to be given a different role? Whose expertise requires a departmental shift? Several such critical insights come into consideration. These cumulatively enable creating successful transitions without causing intermittence.

Vinay Amin, CEO of Eu Natural , states, “Succession planning must be done subtly, progressively and in the background. Group training, team building, extra responsibilities all play a part in preparing employees for key roles, but this should occur within the natural scope of a working day.”

Chapter 4: Why Succession Planning is Important

What are the benefits of succession planning in an organization or the purpose of succession planning are usually the two most common questions that employees tend to ask the management when a succession planning system is implemented. Well, let’s just say succession Planning  should be an underlying philosophy of every organization. Here’s why:

small business succession planning best practices

Avoids Transitional Shortcomings

A succession plan upholds the company’s vision and mission, ensuring that owners and executives understand the business’s future direction. The board can often be rigid about its values. The board members wish to maintain the company’s culture and how values are implemented. A well-charted succession plan provides the board with the necessary confidence in new leaders to maintain continuity in the company’s broader intangible objectives.

small business succession planning best practices

Ensures Availability of High-Potential Future Leaders

A succession plan also creates awareness about the quality and strength of your high-potential employees. High-potentials exhibit high competency levels in their current role and a high propensity for taking up more significant future responsibilities and challenges. Your awareness about an employee’s ability to take on critical future roles makes your workforce future-ready, providing a distinct business advantage. IBM is an excellent example of internal succession planning done right.

small business succession planning best practices

Boosts Retention and Engagement

Succession planning’s importance extends to offering excellent incentives to employees. If the employees understand the value accorded by their company to them, they are motivated to work toward the business goal. It improves the company’s retention and employee satisfaction rate. The succession planning process also attracts quality and dependable candidates from the onset.

small business succession planning best practices

Competitive Advantage

Amid a fast-transforming business landscape, a thorough succession plan bolsters your chances of managing disruptions. Only able and foreseeing corporate leaders can embrace the risks and uphold the company’s reputation and long-term growth. This enables them to focus on longer-term business opportunities rather than on the opportunities in the next few quarters. Hence, in business, succession planning’s importance is undeniable.

small business succession planning best practices

No Lengthy Vacant Period

Internal candidates are well-familiarized with the company’s culture. Hence, they are inclined to proactively take charge and smoothen the transition from one leader to another. Hence, succession planning benefits extend to disaster-proofing your business against such odds.

small business succession planning best practices

Lower Expenditure

Having a succession roadmap is often perceived as an expense by the company. But it is the other way round. One can’t prepare a succession plan overnight. It’s an ongoing process that minimizes time and financial resources in shortlisting, recruiting and grooming leadership from outside when you already have a qualified pipeline of candidates internally.

While some businesses have a definite succession plan, others do not possess such a structure.

As per a study conducted by the Canadian Financial Executives Research Foundation (CFERF), only 40% of Canadian private companies have a clear business ownership succession plan .

Such instances pose grave challenges and disadvantages to the business continuity in case of unforeseen situations. Here’s how:

small business succession planning best practices

Uncertainty

Not having a succession plan will expose the company and its stakeholders to unnecessary risks, adding more confusion and chaos. Leaving critical roles vacant for an uncertain period may severely damage the business infrastructure.

small business succession planning best practices

Thinning of Internal Loyalty

Alienating potential successors and promoting the wrong talent due to hasty decisions will only create a volatile work environment and a lack of motivation. Many may perceive the action of training their subordinates or outsiders over them for leadership as wrongful. A textbook example is that of P&G. It did not or was not able to promote a successor from within its ranks . Many experts and in-house veterans have claimed that choosing an outsider may have endangered the employees’ loyalty.

small business succession planning best practices

High Attrition

According to the Work Institute’s 2019 Retention Report, 36% of employees quit within the first year of their work for various reasons. But according to a report by HR Drive , 75% of causes for employee turnover can be prevented. Employees want a growth opportunity in the company. If they don’t see the company investing in their professional development and career advancement, they may choose to leave their jobs. Consequently, the company may end up losing a high-performing employee.

small business succession planning best practices

Unorganized Architecture

We agree it is challenging to foresee business challenges. But in the absence of a succession plan, it isn’t easy to survive an evolving business landscape. For example, It’s not prudent to announce someone’s retirement and not name a replacement. Microsoft was in a similar position when Steve Balmer abruptly announced his retirement in 2013, without naming a successor . With a plan, neither the company’s structure exposes itself to such developments nor reflects poorly on its fundamental responsibilities.

small business succession planning best practices

Misguided Hiring

A succession plan lays down the fundamentals for new hires by matching them with the existing pool. But what happens when the metrics to evaluate the hires are missing? We don’t blame them, but hiring managers do end up missing the red flags, taking missteps in the hiring process and hiring a bad fit. It leads to talent shortages and various other issues that exacerbate the problems.

Josh Baron, the co-founder of Boston-based firm Banyan Global, in his book, Harvard Business Review Family Business Handbook, writes, “Even with good intentions, many owners find it difficult to plan their own eventual transition from the business that has become part of their identity. But delaying or poorly planning your transition can wreak havoc on the business in the long run.”

Chapter 6: Who Needs Succession Planning and When

It is a misguided assumption that only Fortune 500 companies undertake succession planning. They might have had a head-start in implementing the process, but it doesn’t diminish the need for small and medium-sized businesses. Any company can develop and execute an effective succession plan as it benefits organizations of varied sizes at numerous stages of growth. But one must establish the process to do the job right. 

When is the right time for it, you wonder? Well, here are some experts suggestions to fill you in: 

  • Stewart Dunlop, the founder of Digital Marketing Agency PPCGenius.io , says, “ There are numerous reasons to start succession planning as soon as possible. First, a well-designed succession plan will inspire you to work hard to grow and establish your business in a way that it will still hold its worth after you’re no longer a part of it. ”
  • Trond Nyland, the founder and CEO of Cordless Drill Guide , states, “ Succession should begin three years before your retirement. It allows the time to comfortably research and find the perfect candidate. Enough time to teach the company culture and ensure that the new leader embraces it fully. It allows you both to sit down and create 5-year plans and set subsequent goals.” 
  • Dan Bailey, the President, WikiLawn Lawn Care , has a different perspective. He states, “ Even if you’re not filling the vacancy of CEO or another C-level position, having a plan for filling management roles benefits everyone and keeps things moving smoothly. Hence, your plan should ideally start before succession is even a consideration, with training people to take over vacant roles.”  
  • According to Drew Stevens, CEO/Managing Partner, Stevens Capital , “ Succession planning needs to begin immediately. Two reasons a) small business owners need to create a plan when they desire to exit the business or become disabled and b) for public organizations similar to the President of the United States, plans must be in place during a disability or in the case of death. There have been a myriad of CEOs over the years who have passed while in office without proper plans of success, throwing the organization into a tumult.”

Chapter 7: What Are The Seven Steps to The Succession Planning Process

Jim Pendergast, SVP of altLINE (a division of The Southern Bank Company), i s of the opinion that “ Organizations have years to plan out end-to-end transitions, particularly for senior and executive staff. There should be an established checklist in place as soon as positions are formed. Without some formal approach ready, even a rough one, you’ll face significant cost creep in your succession process, not to mention enormous amounts of management limbo and stress.”

Below is an insightful, seven-step succession planning process to help you get started with the succession planning procedure.

The s even steps of succession planning include:

7 Steps to the succession planning process

1. Uncovering Key Business Positions

Key business positions are those that are extremely important for an organization’s continuity and success. These positions are significant as either they are too critical to be left vacant for long or are extremely difficult to recruit for.

small business succession planning best practices

2. Mapping Key Competencies To Build Success Profiles

This step involves identifying the behavioral requirements of a specific role to find the perfect fit to make your evaluation more streamlined, objective, efficient and effective.

small business succession planning best practices

3. Shortlisting Potential Successors

Shortlisting candidates as successors should span the whole organ­i­za­tion. Apart from senior management, you must look across departments, positions and teams for any employee in any area who can be a likely successor.

small business succession planning best practices

4. Choosing The Right Succession Planning Tools

Working out the right new tools and systems that must be in place to support the roles derives fruitful results.

small business succession planning best practices

5. Assessing Potential Successors

Devising in-depth, robust strategies and exercises to assess whether the nominated candidates have the knowledge, skills and caliber to perform the new role.

small business succession planning best practices

6. Charting The Way Forward

Not every candidate is going to be a born successor. Hence, chart out a customized way-forward for each potential’s journey to nurture them to reach a certain level.

small business succession planning best practices

7. Act Upon The Decision

Be proactive and implement the succession planning process the minute your hiring begins. What seems like a one-off process is fairly time-consuming, stretching into months or even years. If a sudden need arises, it’s better to be prepared than sorry.

Here is a free succession planning template that supports businesses and employees across any industry or organization to make life simpler. It’ll help you get started on your succession planning process at the earliest.

Succession Planning Template

Succession Planning tools and Template

While many companies look outside of their domain for an ideal successor, we propose investing in your internal talent pool when initiating a succession planning process. It is likely to yield better results.

Businesses are expected to remain relevant by adapting, innovating and accelerating toward the digital ecosystem. They need to prepare and prioritize their vision, identify vulnerabilities, shortlist pipeline potentials and envisage a path forward. These can’t be undertaken without a leader, a plan or the right tools.

Tools? Yes, you read that right. 

Succession planning tools help determine who amongst a set of employees has the potential knowledge and skill sets to fill in many critical roles. They allow you to navigate ahead by syncing your vision with a suitable leader. By providing in-depth knowledge of essential, work-relevant personality traits and behavioral tendencies of individuals, the succession planning toolkit identifies and prepares top talent for various roles and indispensable challenges for achieving organizational success.  

Here are the succession planning assessment tools one must leverage to the core when instituting a succession planning model   :

Succession planning tools

These succession planning tools and techniques are the building blocks of any assessment. Let’s elaborate on them for better understanding.

small business succession planning best practices

1. Personality Tools

In succession planning, it is vital to gain a more comprehensive understanding of personality, of which the management might not be aware. Therefore, companies assess p ersonality traits that are the determining characteristics exhibited consistently despite changing circumstances. 

Personality assessments are commonly undertaken at the mid and senior levels. 

This top succession planning software tool is validated and optimized to test beyond the traditional ‘Big Five’ framework of personality. It provides a comprehensive picture of the culture and role-fitment while evaluating the likelihood of handling integral work-related activities. It also proffers objective insights into how others might react to the same situation. Many state-of-the-art personality tools also measure motivation as it is synonymous with related personality traits such as commitment, accomplishment and enthusiasm.

small business succession planning best practices

2. Behavioral Assessment

A behavioral assessment tool requires candidates to demonstrate chosen and critical behavioral competencies in one or multiple exercises that mirror actual workplace situations. It identifies and analyzes behaviors required of employees when they take the lead, professionally and socially. 

A behavioral tool brings clarity on how people behave at work. Hence, they combine innovation and scientific rigor to assess the role-fitment. Different types of behavioral assessments can be used independently or in combination for an individual’s holistic overview. It includes caselets, situational judgment tests and inbox exercises, etc., to gauge an employee’s mindset and potential. Hence, it is ideal for implementing behavioral assessments, such as employee succession planning software .

small business succession planning best practices

3. Cognitive Assessment

Cognitive ability is the brain’s ability to undertake core tasks such as thinking, learning, memorizing, paying attention, visualizing, recognizing, organizing and interpreting the surroundings (perception). 

In succession planning, cognitive tests assess critical thinking and reasoning logic related to on-the-job performance. The test measures two intelligent types- crystallized intelligence and fluid intelligence – through a series of complex questions.

Succession planning tools

When succession planning for top management, cognitive tests help measure leaders’ aptitude to achieve excellence that is aligned with business goals – various research studies have indicated that cognitive ability predicts job performance twice better than job interviews, thrice than work experience, and four times the education level!

small business succession planning best practices

4. Technical Assessment

A technical competency framework handbook provides detailed insights into identifying stellar IT/ non-IT skills sets to companies assessing technical roles. Various professional tests provide comprehensive knowledge of the on-job-relevant behaviors and the technical expertise required to be successful.

small business succession planning best practices

5. 360-Degree Feedback

Apart from utilizing the four tools above-mentioned, it is advised to gather stakeholders’ perspectives when succession planning. That is because they are the ones with whom the potential successor works and interacts regularly. Hence, seeking feedback from multiple stakeholders such as the employee’s superiors, peers, direct reports, and even clients enables them to understand their perceptions of the employee’s readiness to take on future roles.

Leveraging this information can help the employee develop a more well-rounded perspective on performance, skill levels and behavior as perceived by others. Using a multi-rater feedback mechanism, such as Mercer | Mettl’s 360-Degree Feedback survey, allows one to understand whether the concerned employee has demonstrated leadership qualities. Using this tool as an additional metric to determine the right fit ensures that multiple perspectives are factored in when making the final decision. 

Even the most successful individuals often have flaws that are blind-sided, and various succession planning examples state the same. Hence, it is advised to apply a combination of personality, behavior and cognitive tools to achieve an in-depth measurement of crucial, work-relevant personality traits and behavioral tendencies for individuals positioned in specific high-priority roles. These time-tested succession planning tools can either be administered independently or in a more organized manner through a ssessment/development centers. We encourage you to read this blog for greater clarity on the subject.

Assessment & Development Centers

Assessment and development centers (ADCs) are scalable, cost-efficient and tailor-made tools that help identify successors across various jobs and levels. ADCs bring together roleplays, situational judgment tests, group discussions, presentations, interviews, simulations, psychometric and aptitude tests, and similar activities to make crucial people decisions. These multiple assessments provide a detailed evaluation of candidates to determine their most appropriate roles. 

The ADC toolkit can be administered either virtually or in a blended format.

small business succession planning best practices

Virtual Assessment & Development Centers

A virtual assessment & development center involves employing multiple online tools to evaluate the extent to which chosen participants display select competencies. It is a detailed evaluation of individuals’ role fitment by assessing each person’s various aspects for success in a critical role. With zero logistical hassles, no bias and simple infrastructure requirements in internet connectivity and computers, decision-makers gain a holistic understanding of the candidates through multiple lenses.

Virtual ADC toolkit mostly consists of:

Succession planning assessment tools

Blended Assessment & Development Centers

Blended assessment & development centers are a combination of onsite and online assessments. The assessors gain insightful and data-backed outcomes by expanding the means and methods of measuring a potential candidate. This interwoven scenario is a valuable addendum to the repertoire of assessments available, also providing different perspectives on each outcome. Few competencies are mapped using online tools with life-like simulations. The rest are assessed concurrently based on physical activities.  

In addition to the online succession planning software tools mentioned-above, the blended ACDC toolkit consists of:

  • Group Discussion and Group Activities: These are conducted among a select few candidates tasked to work together with all the group members to solve a given problem. Through such group activities, candidates are assessed on social skills, leadership propensity, influence, inclusivity and other values. They are undertaken with assessors as observers who evaluate the candidates on the concerning competencies. Candidates are assessed on active participation, along with their quality of ideas and perspectives. 
  • Case Study Presentation : A hypothetical business-related case study is presented to the participants. This activity takes them out of their regular day-to-day roles. It offers them a glimpse of the problems while allowing them to experience critical interdependencies, execute best practices and explore alternatives to devise an all-embracing succession planning system.
  • One-To-One Roleplay: This activity enables examining how the participants behave with others in a given situation. This exercise allows the assessors to observe how the participants respond when dealing with challenging interpersonal conditions. An individual’s ability to perform well in this activity is likely to directly correlate with the role’s required competencies and behaviors. This is an ideal HR succession planning software feature. 
  • Competency-Based Interview : This interview’s premise is that past behavior is the best predictor of future performance. Hence, a competency-based interview uncovers the participants’ past performance through questions. It highlights their abilities to perform the job.

Each of these succession planning solutions can be administered online and/or in-person, factoring in a myriad of demands of the present-day business environment. These tools are customizable for all employee levels throughout their employee life-cycle, from frontline employees to managers and other senior positions. 

So, which succession planning toolkit are you leveraging for your organization? 

Are you still confused? We understand. All this information can get a tad bit overwhelming. Especially when there is no one-size-fits-all approach, selecting the fight set of tools depending on your requirement does become difficult. Thus, to ensure the management undertakes the best succession and talent management practice that ensues significant benefits, here are a few factors to keep in mind.

Factor Affecting The Succession Planning System

Here are the four most critical requirements or decision- making factors on which banks your choice of succession planning tools:

Factor Affecting The Succession Planning System

Let’s explore them in more detail.

small business succession planning best practices

The role or title for which you are planning is a crucial factor that affects which succession planning toolkit you would need to shortlist. This is because the profile specifies how complex or simple the tools need to be while deciding. For example, a senior leadership role will require a more comprehensive succession planning system than a junior role. After all, a higher role demands a more thorough assessment of the candidates’ leadership qualities, knowledge, future-thinking approach and actions through the tool.

small business succession planning best practices

Just as every fingerprint is unique, the succession planning requirements of every industry is distinct. For instance, a software firm’s requirements don’t need to be similar to that of a retail firm. While one will need to evaluate technical performance on priority, the other will prefer different skill sets. Therefore, you cannot follow a one-tool-fits-all approach here. Hence, businesses considering employing succession planning tools should comprehend their industry’s goals in sync with their business requirements and dynamic workforce before taking a call.

small business succession planning best practices

It is well-known that succession planning is a time-consuming process. It takes time to design and is implemented in the future. Similarly, you need to factor in time to track and evaluate your tools’ effectiveness. Hence, time is a critical factor that helps decide the kind of succession planning tools one can wield in a succession planning model . For instance, the more time you have at your disposal, the greater your advantage is in expanding the tool kit, viz-a-viz someone who needs to fill a role urgently. 

Suppose you are an organization restricted by time. In that case, you can employ virtual a ssessment and development centers that work in a virtual setting and bring together various exercises and multiple assessments. They are quick to administer and easy to manage within a given time-frame while providing a detailed candidate evaluation.

small business succession planning best practices

Like any organizational initiative, a systematic succession plan cannot be initiated without budgetary considerations. After all, scouting, recognizing, developing and evaluating talent needs financial inputs. Hence, fiscal consideration allows organizations to keep a focussed approach toward the tools availed to implement a succession planning system . That way, depending on your spending capacity, you can employ one or more tools to achieve your goals. For example, if you are a business owner with a small-scale budget, you can employ a readymade set of assessments to achieve the purpose of the succession planning system . Such tests are mapped to pre-defined competencies that are not specific to any organization but cater to a standard succession planning framework, typically used across industries and/or seniority levels.

The Mercer | Mettl team recently helped India’s largest engineering & construction conglomerate initiate its succession plan . 

  • Problem : The firm wanted to objectively identify its high-potential candidates to train them for assuming leadership roles in the future.
  • Solution: Mercer | Mettl’s subject matter experts formulated a solution by creating a customized behavioral assessment and emotional quotient report for screening high-potentials. They covered various critical parameters such as people management, ambition, tactics and learnability. The assessment instantaneously provided detailed insights into candidates’ strengths and weaknesses, enabling the firm to gain a holistic understanding of its talent pool. 
  • Impact: The firm could roll-out a fast and accurate high-potential identification program. It also contributed toward engagement and rewards to ensure that deserving people were invested in and continued with the company.

Chapter 10: FAQs

Before you move on, we’ve listed down the answers to some common questions on the s uccession planning model, succession planning procedures, succession planning templates, and the succession planning strategy .

What is succession planning in human resource management?

The succession planning process in human resource management essentially means initiating a strategically tried out process of identifying the next generation of leaders who can ensure business continuity when key leaders move on to new opportunities, retire or pass away. 

Who is responsible for succession planning? 

Succession planning is a decision undertaken by the senior management and board members but is implemented by the human resource team.

Nurturing a star talent is always easier said than done. After all, you can’t always be foresighted to identify the right talent and then develop them for precisely what the future may demand. Nor can you rely on instincts to forever make promotion decisions – that you will always have an ideal fill-in and fit-in is just too good to be true. This is why succession planning is a requisite for every organization. It improves the choices we make about employees, business associates, top executives and corporate leaders. It gives us the fuel necessary to deal with an unplanned crisis . The unfolding challenges in what may be a brutally uncertain business landscape, scarred by the experiences of the Corona-induced disruption, necessitates implementing and accelerating the succession planning process for companies. It is best to be future-proof.

For a business, moving forward without a succession plan in place creates uncertainty. Uncertainty promotes disruption and endangers future competitiveness. The goal of succession planning is to maintain continuity and even enhance future operations.

Ceo of loanry.

Originally published February 24 2020, Updated December 19 2023

small business succession planning best practices

Shirisha Jain

Shirisha has been helping countless brands gain traction with her content. Her deep understanding of the education sector and sound knowledge of technical skills have helped her structure the most creative solutions for key stakeholders. Shirisha has also ghosted pieces for several industry honcho’s successfully published both online and offline. When she's not keeping up with the world, you're sure to find her catching up on bollywood stories or gramming for fun.

small business succession planning best practices

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Succession Planning Best Practices Every Startup Should Know

small business succession planning best practices

Has Succession taught us nothing?

The Emmy-winning television show depicts the havoc that can be wrought by a CEO’s failure to name a successor. However, a 2016 Harvard Business Review survey showed that more than half of companies don’t have a contingency plan in place if their CEO were to suddenly step down.

You’d think company leaders and board members would be spurred into planning mode. But maybe they don’t have HBO.

Or maybe they don’t think succession-planning best practices apply to them. After all, when a company is growing or stable, the last thing its leaders want to think about is what they’ll do in case of an emergency. And why waste time planning to fix something that isn’t broken?

Such neglect comes with risks: “Not having a truly operational succession plan can have devastating consequences for companies,” said Stephen Miles, a succession planning expert.

Succession Planning Best Practices

  • Regularly self-assess.
  • Get the board aligned and involved.
  • Develop internal leaders to eventually step up.
  • Ask what the company needs three years from now.
  • Establish criteria for the role.
  • Embrace the search, with or without a recruiter’s help.
  • Don’t put off planning — even if things feel fine.

To understand how successful tech companies plan for the future, we spoke with seasoned executives and consultants across the industry. Their responses have been edited for length and clarity.

Succession Planning Experts

margot mcshane

CEOs Should Regularly Self-Evaluate

Sood : I would suggest that every founder or CEO do some introspection to make sure they are not just trying to figure out how they can remain CEO. Just as they evaluate each team member and look for the next best possible person to bring in, the same thought process has to be applied to their own role. This is about making sure you’re aligning to your North Star: the vision that you’ve defined for the company.

Before I started the company, I asked myself, “What is the North Star that will allow us maximize our opportunity?”

I had to mentally prepare myself that at some point, if and when the time is right, I would have to think about how to create a succession plan for m y own role.

I went out and looked for my own replacement, because we wanted to figure out — given where we are with the growth that we have achieved over the last several years, and the foundation we built — what would allow us to go and run even faster, over the next three to five years?

CEOs and Boards Should Work Together

McShane : Unless there’s already an established culture at the company of succession planning, it could be a very sensitive topic for the CEO and raise all sorts of questions. But all things being equal, the CEO is very much included in that process, and should feel comfortable with it. You don’t want them to feel like their job is in jeopardy or they’re threatened (that’s a separate conversation if that is the case). You want them to feel as in charge of the process as possible, which mainly means that if the board suggests it, the CEO takes charge of the situation themselves, and drives it.

Develop Bench Strength 

McShane : If there’s an emergency, you want some good options. So let’s talk about people on your team who have that potential. Let’s assess them. And then let’s talk about a development plan to figure out how they could develop and grow to eventually be someone who could run this company.

That’s just the best practice anyway. It puts less pressure on the CEO to be all things to all people. And the board likes to have some options that way. If you do this in the right way, it makes the CEO feel fortified and also makes her or him feel like their investment — and when I say investment, I mean a lot of what CEOs at this stage care about are the financials of the company and their legacy.

The best practice is that this isn’t a CEO succession process. It’s a succession process. And one of the pieces to that is not just identifying immediate successors who might be direct reports to the CEO, but looking below that first level of management to the next level to think about how those individuals, what their potential is, how they could develop and coming up with their plans, so that you’ve got bench beyond just that immediate CEO succession level.

Read I Made Millions Selling My Startup to Salesforce

Determine What Your Company Needs Next

McShane : The main thing to start with is understanding the business context and strategies, how those are evolving, and then creating a success profile — a job spec — for the CEO. The spec of the CEO today often isn’t what they’re going to need six months, three years, five years from now, because their strategies will evolve, which means the requirements and the skills and experiences might look different.

Franklin : I advised a company that was looking for a new CEO. I asked them if they wanted a candidate with “culture fit.” They said yes. But I told them they didn’t: “Your culture is ‘ABCD.’ That’s gotten us to where we are today. And there’s some pros and cons to that. But maybe we need to let go of A and B values; they were good back in the early days. And let’s keep C and D values, and add E and F values, maybe around things like accountability and execution. Let’s go find a CEO who is a ‘CDEF’ culture person.”

Review Your Leadership Criteria

Franklin : We first came up with 10 criteria and asked ourselves: ‘What problem are we trying to solve? What are we looking for?’ We wanted a late-stage CEO with crossover investment experience, who had IPO experience, would live in Colorado [where the company was based], and meets our four-H culture criteria — honest, hungry, humble, happy.

Sood : We were looking for a person who had the experience not just growing and scaling private businesses into profitable growth businesses, but also doing it as a public company. Because at some point, all of the growth companies need to figure out ways of making that kind of transition. And you essentially have to prepare the entire organization to go through that process and journey about 18 to 24 months in advance of that becoming a realistic possibility. So how do we prepare the company for it? And who would be the right person who has had that experience? That was our orientation in looking for the right candidate.

McShane : We have a whole methodology from psychometric data, deep dive interviews, references. We have a bunch of data on what makes a good CEO. And we determine where they are in terms of their potential to be a CEO, where they are developmentally from a competency standpoint. Then we talk about it with the client.

It’s going to depend on the individual and the company. One of the hardest things to do as a CEO is to be the only one making the decision, and sitting alone with that, but also, to be able to truly lead and manage all functions. Many first-time CEOs may have managed some of the functions, but they haven’t had to orchestrate and coordinate all of them. So rounding out their experience set is a key part of all this.

Get a Communications Strategy in Place

Sood : The communication and transparency around this both internally and externally was extremely important, because our business is in a position of strength. And this change is only going to add to that strength. So we wanted to make sure that, not only did our own team understand that as clearly as possible, but the rest of the customers and partners and the rest of the ecosystem that we work with.

[When I stepped aside from the CEO role ] I wrote a blog post that communicated why we made the decision and the entire thought process behind it. And that was shared externally. But it started internally, emphasizing that it’s a decision that was made not overnight but by design.

Embrace the Search

Franklin : We made our criteria, then thought, let’s work our networks and have some coffees. Timebox it to 30 days. There goes a month. Now let’s get a recruiter, try to get them to understand how to interview for our value system, set up a weekly cadence call. Do waves of interviews. Break the interview teams in two. Maybe one team focuses on interviewing about CD values and takes the first five out of 10 criteria, and the other team focuses on interviewing about EF values and the other five criteria. Then you have the pre-call call, the call and the post-call call. It’s a lot of work. We funnel it down to like three contrast candidates for wave one. Maybe one is a really experienced CEO who knows our growth stage, one is good at domain and one is local. And we have to discuss how we’re going to trade these off. We interviewed 33 candidates in 15 months.

Sood : We started the succession process late last year. I told the board that, given the milestones that we were already hitting, this was the right time for us to start thinking about and preparing for this kind of transition. So the first step was getting the board aligned. The second step was formalizing the criteria that we were looking for in a new CEO. The third step was to retain a firm that had a track record of succession planning for companies that were looking to grow faster.

Don’t Put It Off

McShane : Usually, for a smaller company that’s high growth and disruptive, you have so much on your plate, and your business is changing all the time. The last thing you’re thinking about is developing leaders, let alone succession planning. But it’s a win-win if you’re doing both. It’s going to make the business better, and people are going to care more. It’s going to show professional maturity on your part. It doesn’t even have to be overly formal, but there’s no reason not to do it literally from day one. And at the very least, you’re going to end up with a better team because of it.

Read Next What Kind of Startup Needs a Chief Operating Officer?

Great Companies Need Great People. That's Where We Come In.

succession planning best practices

Succession planning best practices: 9 steps to prepare your org for change

Lucid Content

Reading time: about 7 min

No matter what size or stage your business is at, at some point in your company’s future, you will have to deal with employees leaving the company, moving to other departments, or taking new leadership roles within the same organization.

With a succession plan in place, you’ll be ready for these changes—and you can ensure that knowledgeable and capable people will move into those vacated or newly created positions. 

Get prepared now with these succession planning strategies.

4 approaches to succession planning

Based on the findings from this study, Deloitte developed four broad approaches to succession planning—and though most companies use the first three options, Deloitte urges businesses to use a more “centered approach.”

Competitive: A serious, process-oriented approach that places potential successors through intense assessment and development. Many employees perceive this strategy as a cold, impersonal approach that ignores human factors such as anxiety and frustration. 

Comfortable: An approach driven by intuition by decision-makers who know what the corporation needs. Decisions are made based on a candidate’s reputation and tenure. This strategy may make the decision-makers comfortable, but it is not objective. 

Compliant: An approach where the company recognizes the need for a standardized, objective process. However, more pressing matters may compete for decision-makers’ time, and the processes that have been started may be set aside in favor of a more subjective approach.

Centered: A balanced approach that takes into consideration the impact succession planning has on the people involved while being supported by processes that keep the selection procedure objective.

With this ideal succession planning model in mind, let’s turn to the basic steps of creating your succession plan.

9 succession planning steps

Remember—succession planning is more than simply naming a successor. It requires companies to think long-term about what goals they want to achieve, which people have the potential to align with that vision, and what training and experience successors will need.

Check out these succession planning best practices that you can use as you plan for your company’s future.

1. Get buy-in from executives and board members

Because succession is more than filling vacant spots, it is important to get executives and the board involved. These stakeholders can help determine how a successor should fit in with corporate values and culture. They are the decision-makers, the ones who generally have an understanding of the challenges and changes that will need to be made in order to grow the business and to keep pace with or outrun the competition.

small business succession planning best practices

See our tips for gaining buy-in for organizational change from key stakeholders.

2. Align succession planning with corporate goals and strategies

It is up to the executive team and board members to determine where the company needs to be in the next four to six years. 

An analysis of where you are today vs. where you want to go can help you determine the set of skills and the experience that a successor will need to successfully lead you in a new direction. Just as company goals should look to the future, your plan for choosing a successor should also look to the future.

3. Recruit superior employees

Your succession planning process should start by recruiting really great people. During the recruitment process , you can assess a candidate’s background, experience, and career plans to gauge how they could fit into your succession strategy long-term. 

You don’t necessarily have to recruit for a specific high-level opening—instead, look for the qualities and experience that would help you recruit employees that can be developed and groomed for future leadership roles.

4. Understand your employees’ goals and long-term plans

You may have big plans for an outstanding employee whose long-term goals don’t have anything to do with your company. Before tapping an exceptional employee for succession development, be sure you know where that employee plans to be in the next five to ten years. If those plans don’t include working at your company, move on.

Managers should meet regularly with direct reports to assess who is interested and capable of taking on more responsibilities within their teams. Then they should report that information to their superiors.

5. Visualize your organization to gain valuable insights

Create org charts to help you visualize what you already have available within your company. When you add employee data to org charts, it gives you valuable insight into the current skills, certifications, and experience of your employees. You should also include information about the employees’ goals. Some may not be interested in taking on leadership roles. 

Looking at this information visually makes it easy to see where there are gaps that need to be filled from within or by looking outside the company. Keeping your org charts up to date will give you great insight as you plan for current and future needs.

data-driven org chart example

6. Integrate career development and performance reviews into your succession planning process

It can be easier, cheaper, and make more sense to promote from within the company rather than looking for somebody new from the outside. Current employees already know your products, understand the company culture, are working to accomplish company goals, and have some degree of loyalty.

Be sure the company has programs in place to help employees build up their skills, learn new technologies, and be able to take on new leadership assignments and step into new roles. 

Start planning with the template below—map out departmental and divisional hierarchies, keep a dynamic list of employee skills and experience, and visualize who is ready to move into new roles and take on more responsibilities.

succession planning org chart

7. Surround yourself with trusted advisors

Don’t try to make important decisions that will affect the company for years all on your own. Bring in senior staff, HR personnel, and other key team members to advise and council with you. With the visuals you have created, your team can quickly understand your succession plan and provide feedback.

8. Communicate your plan 

If you have somebody in mind to be a successor in a particular position, be sure you let that person know. According to research by Massachusetts Mutual Life Insurance Company, of the 64% of businesses that have a succession plan in place, only 25% of those selected to be successors have any idea that they are up for the promotion.

This situation leads to a couple of potential problems:

  • The person may not be interested in the position.
  • The person doesn’t think there is room for advancement at your company and accepts a job with another company.

Letting an employee for succession know that they are a major part of your succession plan opens the lines of communication so you can find out whether the candidate is interested in staying with the company and how they feel about that particular role.

Open communication lets the employee know that the work they do is valued, that the company wants to keep them around, and that you care about their career development.

9. Be transparent where you can

New hires and your current employees like to know that there is a career path for them with your company. Let them know how they can grow, what kind of training is available to learn new skills, and make mentoring programs available to them as appropriate. Employees who feel valued and who see their company putting in an effort to retain their talent have much higher morale and you will have less turnover.

As you begin developing your succession planning model, don’t expect everything to fall into place overnight. Be patient and understand that there may be a significant trial and error period as you find what works best for your company.

Be flexible. The strategies outlined in this article will be a great help, but feel free to add your own strategies or steps to the process, or remove the ones that don’t seem right for you.

small business succession planning best practices

Learn how Lucidchart can help your organization visualize succession plans and prepare for the future.

Lucidchart, a cloud-based intelligent diagramming application, is a core component of Lucid Software's Visual Collaboration Suite. This intuitive, cloud-based solution empowers teams to collaborate in real-time to build flowcharts, mockups, UML diagrams, customer journey maps, and more. Lucidchart propels teams forward to build the future faster. Lucid is proud to serve top businesses around the world, including customers such as Google, GE, and NBC Universal, and 99% of the Fortune 500. Lucid partners with industry leaders, including Google, Atlassian, and Microsoft. Since its founding, Lucid has received numerous awards for its products, business, and workplace culture. For more information, visit lucidchart.com.

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small business succession planning best practices

Succession planning

The sudden, unexpected departure of a skilled employee can devastate businesses that are unprepared for it. Their talent pool and knowledge base immediately diminish, while costs increase as they scramble to hire a replacement and maintain productivity. This vicious cycle can only be stopped by having a pipeline to fill open vacancies as they occur, a process otherwise known as succession planning.

Table of Contents

What is succession planning?

What is the succession planning process, benefits of succession planning, common mistakes made during succession planning, succession planning best practices.

  • Frequently asked questions

Succession planning is how employers identify and develop internal talent to replace employees who take a leave of absence, resign or retire. Traditionally, it was reserved for grooming future chief executive officers (CEOs) and senior leadership, but that approach is no longer considered strategic. Many employers today extend succession planning to a broader base of employees throughout their organization.

Why should employers build a succession plan?

Admittedly, succession planning requires resources, but the alternative could be a talent crisis. Consider these points:

  • Finding a qualified candidate can take up to six weeks or longer
  • Locating candidates with a specialized skill can be incredibly challenging
  • Training an existing employee is generally less expensive than hiring a new one
  • Succession planning is easier than it sounds, thanks to technology

Reframing your talent strategy with a people-centered approach

Reframing your talent strategy with a people-centered approach

Businesses can prepare themselves for the departure of an employee and prevent talent and knowledge gaps by following these steps:

  • Create a strategic roadmap that outlines the company’s talent goals and the responsible parties.
  • Write detailed job descriptions that can help match talent with the tasks required for the positions.
  • Use workforce projections to determine which current and future positions need to be filled.
  • Identify competencies for each job so that employees understand performance expectations.
  • Promote employee growth with lunch and learns, job shadowing, cross-training and mentorship programs.
  • Measure success using relevant metrics, i.e., retention rates, time to fill, percentage of vacancies filled by the talent pool, etc.

By strategically identifying and developing high-potential employees for future roles within their organization, employers may be able to:

  • Maintain productivity
  • Preserve organizational knowledge
  • Retain valued team members
  • Improve employee engagement
  • Reduce recruitment and hiring expenses

One of the most common mistakes made during succession planning is not planning enough or at all. Employers who have gotten a late start should prioritize workforce development and may need to rehire retirees as part-time staff or contractual workers in the interim.

Expanding a succession plan to include many employees other than senior leaders can be challenging. Here’s how to make the process smoother:

  • Use talent management technology to guide strategic decisions about succession.
  • Ensure that employees with high potential have the support resources and training opportunities they need to be effective in their future position.
  • Be transparent with potential successors so they can have a say in the next phase of their career, but also be discreet to avoid creating workplace tension.
  • Conduct exit interviews and periodic engagement surveys to determine what makes employees leave or stay with the organization.
  • Sponsor a retirement plan so employees can feel comfortable retiring from the organization when the time is right.

Frequently asked questions about succession planning

What are the five levels of succession planning.

  • Outline goals and stakeholder responsibilities
  • Write detailed job descriptions to help match talent with required tasks
  • Set performance expectations by identifying job competencies
  • Give potential successors the training and education they need
  • Determine the metrics that will be used to measure success

What is an example of succession planning?

Family-owned businesses that transfer ownership from one generation to the next are prime examples of succession planning. Simply assuming a child or relative will one day take the reins does not ensure the organization's survival. The transition requires strategic conversations, training and thorough preparation.

What succession planning tools are available to employers?

When planning potential successors for critical positions, employers often use talent management technology to identify:

  • Departments within the organization with high turnover
  • Employees who may be at risk of leaving
  • Employees who have high potential for succession
  • Skills and experience necessary for each current and future role

Who is responsible for succession planning?

Depending on the organization’s size, succession planning may be conducted by business owners, senior leaders or HR professionals. But no matter who takes the lead, it’s usually a good idea to make potential successors part of the process to ensure they are comfortable with their future roles and have ample development opportunities.

How much does succession planning cost?

Succession planning is usually less expensive than replacing an employee, which can cost as much as the individual’s annual pay. This estimation accounts for the cumulative expenses of recruitment, training and lost productivity that occur when an individual abruptly leaves an organization.

This article is intended to be used as a starting point in analyzing succession planning and is not a comprehensive resource of requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services.

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Seamless Succession: Best Practices for Business Succession Planning

Succession planning is a critical process that every small business owner should consider, particularly those operating in the $1MM-$5MM revenue range. Professional service businesses, in particular, face unique challenges when it comes to succession planning due to their reliance on the expertise and reputation of their owners. This blog covers succession planning for small businesses and provides best practices to ensure a smooth transition. Additionally, we discuss special considerations specific to professional service businesses and explain the benefits of working with financial experts for business succession planning.

Importance of Succession Planning for Small Businesses:

Succession planning is vital for small businesses because it helps ensure the continuity and longevity of the company, protects the interests of employees and clients, and maximizes the value of the business. In the case of a single-owner professional service business, the absence of a succession plan can lead to significant disruptions, loss of clients, and the devaluation of the company. By having a well-thought-out succession plan, the owner can protect their legacy and maintain the stability and value of the business.

Best Practices for Succession Planning

  • Start Early : Succession planning should begin well in advance to allow for proper preparation and implementation. Ideally, it should be initiated several years before the anticipated transition to ensure a smooth handover.
  • Identify and Develop Potential Successors: Identify key employees or individuals who possess the necessary skills and qualities to take over the business. Invest in their development through mentoring, training, and delegation of responsibilities to groom them for leadership roles.
  • Document Essential Processes and Procedures: Create comprehensive documentation of the business's operations, including workflows, client information, and financial processes. This knowledge transfer will facilitate a seamless transition for the new owner and minimize disruptions during the handover.
  • Seek Professional Advice: Engage the services of a financial expert or business advisor experienced in succession planning. They can provide valuable guidance, help navigate legal and tax implications, and ensure the business owner's objectives are met effectively.

Special Considerations for Professional Service Businesses

Professional service businesses must protect client and employee relationships, as well as, maintain a reputation of excellence. Professional service businesses rely heavily on the trust and relationships built with clients. A successful transition requires careful client communication and involvement throughout the process, ensuring a seamless transfer of responsibilities. Next, business succession plans should consider the employees. Identify and incentivize key employees to stay with the company during the transition period. Their expertise and client relationships are invaluable in maintaining continuity and reassuring clients during the handover. Finally, professional service businesses often rely on the reputation and personal brand of the owner. It is essential to develop a strategy to preserve the business's reputation and communicate the continuity of service to clients and stakeholders.

Benefits of Working with a Financial Expert

  • Expertise and Experience: Financial experts specializing in succession planning have extensive knowledge and experience in navigating the complexities involved. They can provide customized strategies and solutions tailored to the unique needs of the business, ensuring a successful transition.
  • Objective Assessment: A financial expert can offer an unbiased assessment of the business's value, identify potential gaps in the succession plan, and suggest strategies to maximize the value of the business before the transition.
  • Mitigating Risks and Tax Planning: Succession planning involves various legal and tax considerations. Working with a financial expert ensures compliance with relevant regulations, reduces risks, and optimizes tax implications.
  • Peace of Mind: By partnering with a financial expert, business owners can alleviate the stress associated with succession planning. They can focus on running the business while knowing that a professional is guiding them through the process.

Succession planning is crucial for small businesses in the $1MM-$5MM revenue range, especially those with a single owner. Forbes.com offers this list of potential outcomes for your business after your time has passed: "t ransfer it to a family member, s ell it to a group of employees, a key employee or a business partner, s ell it to an external buyer, or h ave it liquidated to pay taxes."

By implementing best practices, addressing special considerations, and enlisting the help of a financial expert, business owners can ensure a seamless transition, protect their legacy, and maximize the value of their businesses. Start early, plan diligently, and secure the future of your business through effective succession planning.

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Home Small business Succession planning template to transition a business in 8 months

Succession planning template to transition a business in 8 months

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on December 22, 2023 at

Jessica Baker

This article has been reviewed for accuracy and adheres to our editorial standard

The Teamshares editorial team has fact-checked this article to ensure that sources, statistics, interviews, and claims meet our standard for accurate and unbiased advice. Our goal is to help educate, inform, and inspire an accessible path to employee ownership for small businesses.

There are an estimated 33.2 million small businesses in the U.S. , employing 61.7 million people—nearly half of America’s workforce. However, our country faces a small business succession problem.

More than 200,000 small businesses are listed for sale each year, but only about 30% of those businesses ever find a buyer. Without a buyer or a clear exit plan in place, even long-standing, successful small businesses often must close their doors.

A succession planning template is helpful for small businesses because it helps owners and employees strategically prepare for inevitable employee churn and what happens when a business owner retires or moves on from the company. Knowing which kind of succession plan to implement and the key differences among them can help owners create an effective succession template:

  • Employee succession planning focuses on identifying and nurturing talent to fill critical positions with capable successors when key employees leave the company or change positions.
  • Small business succession planning focuses on a plan for the entire business when an owner sells the company, sometimes as a result of retirement. 
  • Long-term succession planning typically takes place over three to five years and results in a thoughtful road map for a small business when the owner is preparing to sell or retire.
  • Emergency succession planning focuses on a short-term plan for the interim CEO and/or other small business leaders in the event the owner suddenly passes away, becomes extremely ill or disabled, or experiences an event that leaves them unable to lead.

At Teamshares, we recognize the importance of small businesses to their communities, and we work to help our network companies establish successful succession templates and transitions. Our vision is to help a network of 10,000 small businesses become employee-owned while supporting a generation of business owners through confident retirement. 

In this post, we’ll cover the different kinds of exit plans and share succession planning templates to best suit each situation.

How to write a succession plan

A successful small business exit plan starts with understanding the type of succession and where the transition is happening within the business. Succession plans typically focus on either replacing key employees or selling the business.

  • Replacing key employees: Often referred to as career succession planning , this means creating a proactive plan to identify and nurture top talent to fill critical positions when employees leave the company or change positions.
  • Selling the business: This means developing a long-term plan for when a small business owner wants to exit the company, sometimes in the event of their retirement.

Employee succession planning process

When proactively planning for employee promotions, transitions, and churn, a successful succession planning template encompasses:

  • Identifying key roles, the operational risk associated with losing that employee, and the expected timeline of departure if known. 
  • Evaluating a comprehensive list of role responsibilities. 
  • Building a talent pipeline and considering internal employees who can fill the role based on their career goals, past performance, and abilities, then considering external recruiting if needed.
  • Creating an onboarding and training plan.
  • Continually evaluating performance against company goals and creating a feedback loop with the employee’s successor.

Business succession planning process

When selling a business to a third party, owners should consider the following in a succession planning template:

  • Creating an actionable timeline.
  • Connecting with others who have gone through similar small business sales .
  • Building out your team of advisors, such as your M&A attorney, financial advisor,  business broker, and CPA.
  • Evaluating the business. This includes analyzing expected external factors in or around your business that could necessitate a sale in one to five years and compiling financial statements to determine the value of the business.
  • Getting a list of due diligence items from your broker and compiling the documents.
  • Assessing processes, operations, and roles that are critical to business success.
  • Documenting the business’s unique institutional knowledge and core competencies, and the strengths of the current team.
  • Choosing a successor. At Teamshares, we place qualified, generalist leaders who will bring strong business acumen and management skills to grow the business.

Example succession plans

All succession templates look different depending on the type of succession: career vs. small business vs. long-term and emergency. Consider the different scenarios and examples below to figure out which succession planning template is right for your small business.  

Are you a broker or business owner that needs an exit plan to keep your company and employees in place?

  • Employee succession planning: Creates a strategy for filling critical positions with highly skilled talent when employees leave the company or change positions. This type of plan helps employers find and nurture talent to fill any gaps left by high-level leadership or key employee departures. 
  • Small business succession planning : Focuses on what happens to the entire business when an owner is retiring and plans to sell the company. Typically implemented three to five years prior to retirement, although sometimes in as little as eight months, these plans set the small business and its current employees up for success after the transition. Small business succession planning considers strategies like selling to an outside party, passing the business off to the owner’s family heir, selling the business to an employee, or liquidating the small business.   
  • Long-term succession planning Typically takes place over three to five years, this results in a thoughtful road map for the small business when the owner decides to leave. Long-term succession planning is strategic and proactive, whereas emergency succession planning is often more reactive.
  • Emergency succession planning delineates a set of responsibilities for the interim president, CEO, and/or other key leaders of the small business in the event the owner of the business suddenly passes away, becomes ill or disabled, or experiences an event that leaves them unable to lead. Emergency succession plans are never ideal and can be avoided by implementing a proper long-term succession strategy. 

Based on your small business needs, select one of the long-term succession planning templates below:

  • Succession planning template for small business owners and current presidents who are staying in their roles but want to build a proactive recruiting strategy for transitioning other key employees.  
  • Succession planning template for prospective presidents who are looking to leave a high-level position.
  • Succession planning template geared towards small business owners looking to exit their business.

Employee succession planning template

This employee succession planning template helps small business owners and current presidents build a proactive recruiting strategy to temporarily or permanently fill critical openings without disrupting day-to-day functions. An employee succession plan also helps leaders build a talent pipeline and improve employee retention, morale, and overall organizational success. 

download employee succession planning template

Leadership succession planning template

A leadership succession plan is focused on filling the gap that is left when a president or CEO is leaving a high-level role. Our succession planning template is a road map that will help address the priority functions and essential responsibilities of a president or CEO that staff or a new leader will need to address.

small business succession planning best practices

Business succession planning template

If you’re an owner who’s considering retiring and selling your small business, it’s best to begin working on a long-term plan three to five years prior to your exit and expected sale. Small business succession planning is about creating an exit strategy that takes your community and employees into account, and anticipates the complicated emotional and logistical process of selling a business. It’s also about establishing a legacy.

small business succession planning best practices

How to use a succession planning template

Our succession planning templates are made in Google Sheets and simple to use, even with no prior experience. Follow these step-by-step instructions to copy each succession planning template, fill out the information as instructed, and convert the final document to a PDF to use as needed.

copy succession planning template

Best practices in succession planning

After working together on several small business acquisitions , we asked Lauren Altschuler , CEPA, CBI, M&A Advisor at Transitions in Business, to share some best practices in small business exits.

Lauren offered valuable advice for business owners and leaders preparing for a small business transition. Her key recommendations, including the questions business owners should consider, are:

  • Stop using the business as a tax shelter. At least three years prior to a sale, stop running personal expenses through the business and stop buying expensive equipment for the depreciation write-off.  
  • Start using a professional bookkeeper, if you haven’t already.  
  • Ensure your financials are in order.  
  • Remove yourself as much as possible from the day-to-day operations of the business, to demonstrate that the business can run well without you.  
  • Try to make sure that no single customer makes up more than 25% of your revenue.  Consider how dependent your business is on any one customer, employee, or vendor. Be sure you are diversifying your customers and your vendors.
  • Ensure your key employees have employment contracts and non-competes that will stay in place after your departure.  
  • Examine your revenue streams. If your business doesn’t have recurring revenue, develop a plan  to change that. For example, can you start selling year-long recurring contracts to your customers instead of one-off sales? 
  • Work to establish three years of positive trending revenue and profits.  
  • Ensure efficient use of cash in the business. 
  • Structure your business to continue to grow in the future.  
  • Create a significant differentiation between your business and the competition. 
  • Make sure you have satisfied customers.

A succession planning template helps ensure the future of small businesses. By understanding employee career goals and external economic factors, business owners can understand when to initiate succession, and which succession planning template is needed. Creating a succession planning timeline can help owners choose the correct succession process and connect with skilled brokers, like Lauren, to sell their business. 

Whether you’re a small business president replacing a key employee or an owner preparing to exit your small business, Teamshares can help ensure your business remains financially durable and never has to be sold again. Find out if Teamshares is the right buyer for your small business .

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How the Best Boards Approach CEO Succession Planning

small business succession planning best practices

Maria Castañón Moats is Leader and Paul DeNicola is Principal at the Governance Insights Center, PricewaterhouseCoopers LLP. This post is based on their PwC memorandum.

Many boards aren’t fully prepared for CEO departures despite succession planning being one of their primary responsibilities. If we’ve learned anything during the pandemic, it’s that anything can happen. There are important steps directors can take to be better prepared for both planned departures and the unexpected.

Why CEO succession planning can be hard

Planning for who will be the company’s next leader has long been one of a board’s most important responsibilities. Without the right person at the top, even the best companies with the most innovative strategies will struggle. The COVID 19 crisis has accelerated the pace of digital transformation, industry consolidation, and flexible work arrangements. So, boards may need to rethink the skills they look for in a top leader in the post pandemic environment.

Businesses need strong leadership more than ever. Yet all too often, boards are caught unprepared when they need a change in leadership. Why does this happen? For a start, it can be difficult just to have the conversation. In high performing companies, directors may be concerned that broaching the topic of succession will cause the current CEO to think they are looking for a replacement. In under performing companies, directors may want to avoid doing anything to make the CEO worry about job security when they need to focus on driving strategy.

So, why not put off what could be a painful process? Especially when the CEO is performing well, and the conversation doesn’t feel urgent? Because planning for the company’s next leader is in the best interest of the company and its shareholders.

More than half of board members in a recent survey say they need to improve their CEO succession planning . But this is easier said than done. To help directors find a better approach, we’ve identified the leading practices that can help boards better plan for CEO succession.

The changing nature of CEO succession planning

The environment for CEOs is changing. In 2020, 56 S&P 500 CEOs resigned. Of those who quit, 20% did so under pressure , up from 13% the year before. Meanwhile, average CEO tenures continue to fall, making it increasingly likely that directors will oversee more CEO successions during their board service.

As organizations readjusted their business models, supply chains, and ways of working to weather the pandemic, it became more common to look for leaders outside the company. For example, in 2020, 29% of S&P 500 companies that replaced their CEOs hired an outsider , up from 21% in 2019. Going forward, boards may need to place even more emphasis on appointing leaders with M&A transaction and merger integration experience, digital transformation expertise, and greater familiarity with leading flexible workforces.

small business succession planning best practices

Seven leading practices in CEO succession planning

While some boards avoid CEO succession planning, others find ways to lay the groundwork for smooth CEO transitions. How do they do this despite the more immediate pressures of overseeing quarterly performance and strategy execution? We’ve identified seven characteristics that may make them successful.

1. They agree on the skills, experience, and personal traits the CEO will need to execute the company’s current and future strategy

A common roadblock to having productive CEO succession discussions is a lack of consensus about how the company’s short and long term strategies should affect choosing the company’s next CEO. Finding common ground starts with assessing the factors most likely to impact the business over the next three to five years, such as changing customer demands, climate change, and technological advances.

Once the board agrees on how the company’s strategy should reflect these changes, it can identify the skills and experience the next leader will need to achieve its key objectives. Because market conditions change quickly, the board’s process for identifying key CEO capabilities needs to be dynamic. Without routinely refreshing their thinking on what it takes to lead the company, boards can’t truly know what they need in a CEO.

At the same time, directors need to identify the qualities that would make a leader a good cultural fit. If the culture needs to change, they need to define the type of person who could lead the shift. This process should also include conversations with the current CEO and the senior management team to identify the critical attributes for CEO success both today and in the future.

2. They know who owns the succession planning process

Overseeing CEO succession planning is widely considered a full board responsibility. But determining who does what within that mandate can be challenging. Most boards designate the nominating and governance or compensation committees to lead these efforts. Some have created a special ad hoc committee for this purpose. No matter the structure, what’s most important is to establish clearly defined roles and responsibilities.

If a board committee oversees CEO succession, it needs to provide the full board with regular updates so all directors understand the process, plan, and pipeline. The sitting CEO’s level of involvement in succession planning will vary. At the very least, their responsibility should include developing internal candidates. The board chair or lead director typically acts as the point of contact for board discussions with the CEO about succession planning.

small business succession planning best practices

3. They have a documented plan with a timeline and process for updating it

To keep CEO succession planning a priority, directors need to lay out the goals of the process, the cadence for discussion, the short and long term aspects of the plan, and the details of the candidate development program. They should also determine how often CEO succession planning is on the board agenda. And although the current CEO can provide valuable input, the board should regularly discuss CEO succession in executive sessions.

The result of these discussions should be a documented CEO succession plan that describes the responsibilities and expectations of the new CEO. It could also include the skills and experience they will need to drive the company’s long term strategy and a list of possible candidates.

The plan could also establish a timeline for each step the board will take, from assessing internal candidates and interviewing external candidates, to appointing the new CEO and announcing the board’s choice publicly.

The full board should review the succession plan at least once a year. This allows directors to update the capability requirements for the next CEO as the company’s needs change.

4. They have a well-defined emergency succession plan

Too many boards have only a vague notion of how they would respond to a sudden CEO departure. Given the abrupt rise in CEOs leaving unexpectedly, companies without an emergency plan jeopardize their financial futures and relationships with stakeholders.

Developing an emergency succession plan requires identifying strong interim candidates who can step in quickly, such as the CFO, COO, or other candidates already being groomed for the position. Having emergency CEO candidates spend time with the board and the current CEO to better understand the business will help smooth the transition. And the board’s discussion should include whether a director could temporarily step into the CEO role while the board searches for a long term replacement.

PwC perspectives—CEO succession

The perfect opportunity to consider other types of change

Reduce overboarding : During a CEO transition, boards should review their company’s policy on the number of outside directorships the CEO can hold while serving as the top executive. Institutional investors, activists, and proxy advisors often consider overboarding , particularly of CEO directors, when making voting recommendations and decisions. During a CEO succession, boards can revisit whether they need different limitations.

Rethink board leadership structure : Calls to separate the board chair and CEO roles have become more common. Some shareholders argue that a unified role diminishes the independence of the board. Transitions involving an outgoing CEO who is also the board chair are a good time for directors to assess whether that board leadership structure is still appropriate.

Increase diversity : The number of female CEOs in the S&P 500 rose to 34 in 2020 the highest ever. But there have only been 86 female CEOs since 2000 in the S&P 500. When searching for CEO candidates, boards should make a concerted effort to consider CEO candidates that differ in gender, age, race, and ethnicity.

5. They engage their CEOs in succession planning from day one

Once boards have gone through the hard work of appointing and transitioning a new CEO, few have the appetite to restart the planning process. Many put it off for two to three years after the new CEO is appointed. Nearly one third of the directors in PwC’s Annual Corporate Directors Survey say the biggest hurdle to getting started earlier is that the current CEO is meeting expectations.

One way to reduce the awkwardness of talking to a CEO about who might replace them is to make it a routine conversation. Discussing successors regularly, no matter who holds the position and how they are performing, will help make the conversation feel less personal.

Boards that make it clear to their CEOs from day one that planning for their succession is a critical part of their job can circumvent much of the anxiety about whether the CEO will feel threatened by the process. Their responsibility, much like the board’s, is to avoid the disruption of a messy CEO transition.

The CEO’s primary role in succession planning is to identify potential successors and make sure those people are getting the proper experience and exposure to assume the position. Accordingly, directors should ask for regular updates from the CEO and chief human resources officer on their progress in identifying and developing internal candidates.

small business succession planning best practices

6. They have a strong pipeline program

Directors rank maintaining a strong pipeline of CEO-level talent as their number one challenge in succession planning. And yet a weak pipeline can result in a scramble to fill the role or choosing someone who’s not yet ready for the challenge.

A formal internal candidate development program should provide first-hand experiences in the functions the CEO performs, including reporting to the board. This, in turn, enables the board to get to know candidates and evaluate their performance. Candidates in the pipeline should also gain exposure to various aspects of the business and be given responsibility for major initiatives like guiding the company’s entry into new markets.

It’s also essential for directors to deepen their understanding of the external talent market. For example, confidential external benchmarking to identify outside talent that might be considered for the CEO role can give directors a stronger sense of the strengths and weaknesses of their internal candidates.

When two or more internal candidates are competing for a CEO vacancy, directors need to be mindful of the potential impact on company culture. Candidates may become competitive, and until a final decision, tensions can run high.

Directors also need to anticipate the possibility of executives passed over for the position leaving the company and conduct scenario planning. For example, which candidates do they want to stay after the decision? Depending on the answer, directors can find new roles or opportunities for the executives they are interested in retaining. They will also need to think about who might replace those who leave after making the new CEO appointment.

7. They understand the importance of good onboarding, championing their chosen candidate and communicating the process to stakeholders

Failing to adequately onboard an incoming CEO, particularly an external candidate, will put them at an immediate disadvantage. The best boards ensure there’s a transition plan that helps the new CEO get up to speed on company goals, strategy, and company culture. Directors also need to invest time in listening to and guiding the new CEO.

To maintain transparency, boards can outline their CEO succession process in the company proxy statement. This could include a description of who’s responsible for leading the process, how they identify and assess CEO candidates, how often the board reviews the succession plan, and how they would respond to an emergency departure.

Finally, directors need to promote the new CEO to lay the groundwork for a successful tenure. The media, employees, and other stakeholders should all hear the message that the board fully supports the new executive.

Eyes on the prize

These turbulent times demand much more from corporate leaders. Done well, CEO succession and transition planning can increase a company’s chances of getting a CEO who can lead the company into a profitable future. If done poorly or neglected, the company’s prospects and the futures of those who depend upon it are left to chance. And that’s a chance the best boards aren’t willing to take.

One Comment

Excellent article very insightful as a Company Secretary I have seen numerous boards grapple succession planning challenges.

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The Key to Successful Succession Planning for Family Businesses

  • James Vardaman

small business succession planning best practices

Don’t exclude non-family members from the discussion.

Successfully passing the baton to the next generation is a goal for many family business leaders. It can also be a sound business move if the right steps are taken. By clearly communicating family succession intentions, developing strong relational bonds, and proving the fitness of next generation leaders, family firms can achieve buy-in from their nonfamily employees. Not only will this make for a smooth leadership transition, but it can also increase nonfamily identification with both the family and the firm, creating a more productive and satisfied workforce that propels the firm for years to come.

The succession process is one of the biggest challenges facing family firms, as most fail to remain a family business past the second generation. Among those that do succeed, a key concern is how nonfamily personnel will receive a successor. Perceptions of nepotism in succession can undermine nonfamily employee commitment to the business and their continued participation in the firm. Addressing this common issue can be difficult because the ability to choose a family successor and provide employment opportunities for family members is often a primary aim of family business owners. Thus, a key challenge for family businesses is gaining buy-in from nonfamily employees for the next generation of family leadership .

  • WT Will Tabor is an Assistant Professor of Business Administration at Mississippi College. His research focuses on family businesses and organizational ethics. His work has been published in Family Business Review and The Journal of Business Ethics .
  • JV James Vardaman holds the Chair of Excellence in Free Enterprise at the University of Memphis and is the author of Global Talent Retention: Understanding Employee Turnover Around the World .

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Succession Planning...

Succession Planning Best Practices for Retiring Small-Business Owners

Retirement planning financial planning for small business owners | may 05, 2020, about the author.

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EP Wealth Advisors

You’ve spent your whole life working hard and building a business you’re proud of. You may want to have a robust retirement strategy that helps you enjoy the fruits of your labor when you’re ready to call it a career—and your business may be one of your most valuable assets.

By taking a proactive approach to succession planning, you’re more likely to get the best of both worlds—taking steps so that your business remains in good standing once you step away while enjoying the comfortable retirement lifestyle you’ve worked tirelessly to achieve.

What Are the Risks of Not Having a Succession Plan in Place?

If you haven’t put together a succession plan yet, you can take comfort in the fact that you’re not alone. Believe it or not, 60 percent of small businesses don’t have a succession plan either.

So what happens when you don’t have a plan? After years of doing things the right way and building a strong business , your company might end up losing value after you’re gone—making it harder to sell. In a worst-case scenario, you might even be forced to stick around longer than you expected just to keep things humming along.

And who knows? There’s always a chance that you do leave, and your business collapses because you don’t have the right person on hand to replace you. Without a plan in place, you can also cause chaos internally as folks start fighting for control. In such a scenario, things could get ugly—and quickly.

No one wants that. Instead, putting together a solid business succession plan prior to leaving can provide a pathway for your business to succeed, and for you to retire. 

Benefits of Having a Business Succession Plan

Having a succession plan—and, more generally, creating a retirement strategy—is a major opportunity that most small-business owners are missing out on.

With a solid succession plan in place, you get the peace of mind that comes with knowing that you have been proactive about your company. What’s more, succession planning can also bring more stability to your business well ahead of your intended departure, because you’re developing an operational plan by spelling out what’s to come next.

Succession plans may also encourage your top performers to work hard, stay engaged, and continue their career development. If you’ve earmarked a mid-level manager for an executive position down the road, for example, that person may work hard and make better decisions for your company because they’ll have more skin in the game than a simple paycheck.

Succession Planning Best Practices for Small Businesses

Now, you might be wondering how, specifically, you can put together such a plan. 

Here are eight best practices you might want to refer to as you begin developing a succession plan for your business.

1. Understand your individual goals

You need to understand your own goals before you can put together a plan that works for your business. When do you want to retire? How much money do you need? What role does your business play in this? Do you need to sell it? These are some of the questions you’ll need to answer.

2. Center your approach

Best practices say a centered approach can help set the foundation for a successful foundation. This means creating clear, definable objectives and values for the people in the business.

A recent study from Deloitte elaborates on this point: 

Succession planning is most effective when it takes a “centered” approach that focuses on people first while maintaining objectivity and procedural discipline. By approaching succession planning in this way, an organization can likely make it not only an effective part of its growth strategy, but also a signature feature of its corporate culture.

3. Consider several options

A succession plan needs to account for several different options. In an ideal world, you’ll retire when you want to. But you should also think about what happens in the event that you die unexpectedly or are incapacitated in an accident.

4. Identify and vet candidates

Of course, you’ll need to do your due diligence to identify and vet candidates who might end up wearing your shoes one day, based on the objectives your company needs for success.

5. Train successors

Once you’ve named successors, you’ll need to train them. You might want to consult a legal professional and ask them to sign nondisclosure agreements and noncompetes, too. Once you’ve named them successors, it might be time to give them raises as well.

6. Document your processes

You know your business inside and out. But does anyone else? Document your business processes so that people know what’s expected of them when you’re no longer there to answer their questions.

7. Continue revisiting the plan over time

A plan is never set in stone. From time to time, revisit your plan to see whether anything needs to be updated. For example, you might create a plan when your child is 10 years old. How does such a plan change when they turn 30?

8. Get your financial house in order

You don’t want your successor to inherit chaos. As you inch closer to retirement, manage your debt, minimize your taxes, and optimize your finances to increase the chances that your successor lands on both feet.

Need Some Help with Retirement Planning?

One of the biggest reasons the bulk of small businesses don’t have a succession plan is because of how complicated the process is. At this point, you might not even be sure where to begin.

The good news is that you don’t have to do it on your own. By partnering with a trusted advisor, you gain access to a professional who may have helped small-business owners like you develop retirement plans that work for their unique circumstances and include succession plans they are comfortable with.

If you’ve got questions about retirement or succession planning, we’ve got answers. Contact an advisor today to learn how an EP Wealth Advisor may help you meet your long-term business and financial goals.

DISCLOSURES:

  • EP Wealth Advisors (“EPWA”) makes no representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information offered in this article. The content displayed here is believed to be accurate as of the date of delivery. All representation of facts or opinion prices are subject to change without notice.
  • Succession Planning is a sophisticated process that should involve discussions with and the involvement of a number of professionals. These professionals include, amongst others, Accountants, Attorneys, and Insurance Brokers. It is for this reason, that the analysis encompassed herein is not intended to be comprehensive in nature nor should it be interpreted as individualized investment advice. 
  • Our review is limited to and in association with financial planning. . It is intended to serve as a tool containing general information that should assist you in the development of subsequent discussions with the appropriate professionals. 
  • Hiring a qualified advisor and/or financial planner does not guarantee investment success, and does not ensure that a client or prospective client will experience a higher level of performance or results. No guaranty or warranty is made that any direct or implied results or projections being represented here will be met or sustained.
  • Information presented is general in nature and should not be viewed as a comprehensive analysis of the topics discussed. It is intended to serve as a tool containing general information that should assist you in the development of subsequent discussions. Content does not involve the rendering of personalized investment advice nor is it intended to supplement professional individualized advice. 
  • The need for a financial advisor or financial planner and/or the type of services required are specific to the uniqueness of each individual’s circumstances. There is no guarantee or warrantee that the services offered by EP Wealth Advisors will satisfy your financial services requirements. Services offered by other advisors may align more to your specific needs.  
  • All investment strategies have the potential for profit or loss. Different types of investments and investment strategies involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client's portfolio. The risk of loss can never be eliminated even if working with a professional. 
  • EP Wealth Advisors, LLC. is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the advisor has attained a particular level of skill or ability

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Succession planning best practices for family-owned businesses 

The phrase “succession planning” may call to mind the power struggles of the dysfunctional Roy family on the hit television series, Succession. However, if anything, the Roy siblings’ backstabbing plans to become the heirs of their family-owned business create a road map to show how not to treat succession planning.

Kendall, Roman, and Shiv Roy are prime examples of what occurs when succession planning isn’t in place.

Detailed plans for succession can help a company of any size ensure a smooth transition of leadership, should the need arise. Succession planning, when implemented by a fantastic HR team, can be integral in any organization, but is especially so in family-owned businesses.

What are the best practices to follow when it comes to succession planning for family-owned businesses? How can your company embrace this need?

What is succession planning?

Succession planning doesn’t only pertain to positions like CEO or company president — all critical company positions should have a succession plan. Your Human Resources department or outsourced HR consultant team can help identify the most vital positions in your company.

Then, with executive input, create an actionable plan for position and power transfer. By accounting for your short and long-term goals, you can invest in employee development with future succession in mind. Intentionally plan for specific employees, or externally acquired talent, to transition into new positions in anticipation of future openings.

Both formal and informal succession plans may work if they’re thoroughly detailed and planned. These plans help should unforeseeable circumstances occur, too. Sudden position vacancies can send organizations into chaos without plans in place.

Two people succession planning in a family owned business

Image from Canva

Why is succession planning in family-owned businesses important?

Succession planning in family-owned businesses can help ensure that skills and experience have higher value than nepotism. Often, succession in family operations is just assumed rather than communicated.

The assumed heir to running a family business may not be interested in the position, or other family members may anticipate absorbing roles and find themselves passed over when the need arises. Succession may not occur for decades, but it’s an inevitability.

Succession planning benefits

35% of Fortune 500 companies are family-owned: Succession planning matters whether your family-owned business is a small, mid-sized, or large company. Whether the company changes ownership, or new people move into positions of power, succession planning can alleviate a lot of stress and chaos.

Some of the ways this strategy can help family-owned businesses include:

  • Valuing credible ownership and company control over nepotism.
  • Protection from employee lawsuits over company control.
  • Communication with executives and the company board of directors to ensure any transition of power goes smoothly.
  • Seamless power transition in case of an emergency.
  • Peace of mind that your accumulated wealth and the future of your company will be protected and not left in the hands of a ne’er-do-well relative.

The timeline of succession planning

Effective succession planning occurs in several, detailed stages. Choosing an heir apparent without analysis or documented forethought can backfire and detrimentally impact your business. A good HR team can help you create an actionable succession plan.

The stages of an effective succession plan include:

  • Audit and analyze the most critical positions in your organization. For example, you may decide that Chief Executive Officer is a position that absolutely needs a succession plan, but may also discover that your IT department head holds equal importance to ensure the company’s successful execution of operations and growth.
  • Document the goals and aspirations of your team and discern which employees’ goals may match your future position-filling needs. For example, you may find that an Executive Assistant shares your vision for the future of your company, and discover that your son, who’s the Vice President of Operations would like to explore other professional sectors.
  • With the help of your HR team, develop training programs that will allow for inhouse promotions.
  • Determine and document the appropriate chain-of-command should an emergency opening arise.
  • Have your HR team create an actionable, multi-stepped plan to allow a named successor to take over a position in the future, or to implement protocol for future succession needs.
  • Stipulate a time window to fill future openings. For example, if your CEO abruptly leaves the company or can no longer fulfill their duties, ensure that a chosen successor will be named within a certain time frame.

Role of HR in succession planning

It’s vital to allow your HR team input into your succession plan. If possible, your HR department (whether inhouse or outsourced ) should not have any familial ties to the business. In a family-owned business, this proves especially important as these professionals have the advantage of an “outside the family,” business-centered perspective.

An HR team can take a systematic approach to create and implement your succession plan. During the succession process, they can also act as communication liaisons between executives and employees: This helps prevent office gossip and unease.

Your HR manager or HR consultants can also create employee development training programs that can directly impact succession.

A group of people celebrating about something that is displayed on a laptop screen in a family owned business

Tips for family-owned business succession planning

Family-owned businesses may bring lengthy, complicated shared history among employees. This can murky the waters of succession planning. Alas, many family-owned businesses don’t make it past the second generation of ownership, and most don’t last longer than 60 years.

Thus, concrete steps to create an actionable plan are important.

Some tips for smooth transitions and seamless succession processes include:

  • Provide equal opportunity for all qualified employees who want to apply to a new position within your business.
  • Recognize that succession is a process rather than a singular event. Some of the most chaotic transitions stem from the fact that they’re abrupt and unforeseen. Have a general yet detailed plan in place to avoid a blindsided position transfer.
  • Give your relatives the opportunity to opt out of the business at any time should they choose another line of work. This keeps the communication channels open and alleviates pressure.
  • Recruit outside talent . Although having a family-owned and operated business has numerous benefits, it may help to have an outsider’s perspective and experience on your team.

How Europe HR Solutions can help

Succession planning best practices for family-owned businesses shouldn’t be an afterthought. Inevitably, a transfer of power will have to occur at some point. You need a passionate HR team to help you put employee development and training programs in place, and to help you create an actionable succession plan.

At Europe HR Solutions , we’ve helped numerous small, mid-sized, and large companies successfully take care of their HR needs. If you’re a U.S. or U.K.-based family-owned business looking to expand your company to Europe, we’ve got you covered. Contact us for your consultation today and check out our blog for insights into HR practices everywhere.

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Inez Vermeulen

Inez Vermeulen

Inez Vermeulen is the Founder and CEO of Europe HR Solutions, with over 25 years of successful corporate and entrepreneurial experience in various global industries. She has helped grow and expand the European divisions of global companies such as Coca-Cola Company, Regus, DHL, American Medical Systems, etc. Inez has received several company awards for her entrepreneurial spirit and success.

She owns a Bachelor’s degree in French, History and Latin, several HR global expert certifications, a Master’s degree in Metaphysical Sciences, ICF Coach Certification and has completed her Doctorate on Transformational Leadership. Inez is fluent in Dutch, English, French, Italian and German. She works in partnership with an extensive international network of independent & professional companies and resides in Belgium near Brussels with her husband Jan.

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    Succession Planning Best Practices Every Startup Should Know. There's more to it than putting a name on a sticky note. Written by Hal Koss. Published on Sep. 22, 2020. ... However, a 2016 Harvard Business Review survey showed that more than half of companies don't have a contingency plan in place if their CEO were to suddenly step down.

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    Succession planning best practices: 9 steps to prepare your org for change. Lucid Content. Reading time: about 7 min. Topics: Leadership; No matter what size or stage your business is at, at some point in your company's future, you will have to deal with employees leaving the company, moving to other departments, or taking new leadership ...

  14. Succession Planning

    Small Business. Businesses with 1-49 employees lean on ADP for simplicity, efficiency and value for their various payroll and HR needs. ... Succession planning best practices. Expanding a succession plan to include many employees other than senior leaders can be challenging. Here's how to make the process smoother:

  15. Five Critical Components Of A Successful Internal Succession Plan

    Communicate them consistently and clearly, so everyone on your team can articulate them to others and put them into action. 2. Work on succession every day. Leadership transitions are inevitable ...

  16. Seamless Succession: Best Practices for Business Succession Planning

    Business succession planning best practices. 30th Growth Ave, NY 1003, USA +212-800-1234. [email protected]. 23537 Kingsland Blvd, Suite 100, Katy, TX 77494 ... This blog covers succession planning for small businesses and provides best practices to ensure a smooth transition. Additionally, we discuss special considerations specific to ...

  17. 13 Business Succession Planning Best Practices & Tips

    Our experience has shown that companies that follow these 13 succession planning tips are able to stay profitable and effective during a transition. 1. Create Succession Plans for Technical Roles, Not Only Leadership Positions. When considering who to create succession plans for, many companies stop after the C-suite.

  18. Succession planning template to transition a business in 8 months

    Best practices in succession planning. After working together on several small business acquisitions, we asked Lauren Altschuler, CEPA, CBI, M&A Advisor at Transitions in Business, to share some best practices in small business exits. Lauren offered valuable advice for business owners and leaders preparing for a small business transition.

  19. How the Best Boards Approach CEO Succession Planning

    The best boards ensure there's a transition plan that helps the new CEO get up to speed on company goals, strategy, and company culture. Directors also need to invest time in listening to and guiding the new CEO. To maintain transparency, boards can outline their CEO succession process in the company proxy statement.

  20. The Key to Successful Succession Planning for Family Businesses

    Summary. Successfully passing the baton to the next generation is a goal for many family business leaders. It can also be a sound business move if the right steps are taken. By clearly ...

  21. Succession Planning Best Practices for Retiring Small-Business Owners

    By taking a proactive approach to succession planning, you're more likely to get the best of both worlds—taking steps so that your business remains in good standing once you step away while enjoying the comfortable retirement lifestyle you've worked tirelessly to achieve. What Are the Risks of Not Having a Succession Plan in Place?

  22. (PDF) Succession Planning Best Practices for Organizations: A

    Succession planning is an enterprise approach that has gained a lot of interest in all organizations because of excessive demand for holding knowledge and the shortage of skilled workforce. The ...

  23. Learn how to create a succession plan

    Here are six steps to follow when creating a succession plan as well as some best practices to follow. 1. Identify the roles to prioritize. Jumping into succession planning can feel overwhelming. HR leaders can help solve this problem by first identifying the roles most in need of succession plans and noting the job department and level of each ...

  24. Succession planning best practices for family-owned business

    35% of Fortune 500 companies are family-owned: Succession planning matters whether your family-owned business is a small, mid-sized, or large company. Whether the company changes ownership, or new people move into positions of power, succession planning can alleviate a lot of stress and chaos.