Succession planning involves preparing for the future leadership of a company. It can be different for small, medium, large, private-owned or family-owned businesses. While this planning is essential for ensuring the long-term success and sustainability of a business, many businesses do not have it. Less than one in four boards of private companies recognized having a formal succession plan in place, according to the National Association of Corporate Directors.
What is a succession plan?
A succession plan is like a roadmap for a company to prepare for when important leaders or key employees leave. It helps the company make sure there are always capable people ready to step into those roles. By identifying key positions and training people to fill them, the company ensures it can keep running smoothly, even when big changes happen. This plan is to keep the company strong and moving forward.
Why some businesses don’t have it?
According to the North America Family Business Report 2023, a majority of family businesses don’t have a written succession plan, even this type of business commonly has one. This is also despite their concern about a market downturn, with higher inflation and rising interest rates being particularly concerning for 75%.
Not prioritized enough
When businesses do not see the benefits of the succession plan, it is hard to put a priority on it. The report showed that, despite worrying about future leadership, family businesses frequently avoid this topic or do not put it into focus to be discussed together.
Cost concerns
Hiring consultants or legal experts to assist with succession planning can be costly. Hence, some businesses may hesitate to invest in these services, especially if they perceive succession planning as a low priority.
Considered a sensitive topic
29% of the respondents showed that they do not feel comfortable enough to discuss about it. This is true for family businesses, which usually prefer individuals who are among their families. They might not be open to accepting others due to legacy concerns and identities tied to their founders or current leaders.
Not prepared enough
When there is a lack of understanding about the importance of having a succession plan, it can lead to this but that is not always the case. It can also be seen as a complex process. Due to this, some business owners may procrastinate and prefer to prioritize other urgent matters over long-term planning.
What if these businesses have a succession plan?
According to the IMD – International Institute for Management Development and Deloitte, these are the benefits of business succession planning:
- More qualified people are available for top jobs
- Less likely to have risk of losing experienced leaders
- Save money and resources on finding and training new people
- HR can set clear formal procedure for picking top and middle managers
- Helping business survival and growth
- Keeping harmony in family-owned businesses
- Reducing in estate and income taxes
- Easing the way for current leaders to retire
Conclusions
Succession planning is essential for businesses because it helps protect the value of the business and the interests of the people who own a part of it. While it helps businesses a lot, many don’t have it. However, the benefits of implementing succession plans, as highlighted by leading institutions like IMD and Deloitte, underscore its significance. A succession plan helps businesses make sure that they don’t lose important knowledge when key people leave. With a succession plan, this helps keep customers satisfied and keeps the business to sustain longer.
