How Succession Planning Works

The most important thing to remember is that the transfer of leadership should be seen as a process rather than an event. Suddenly letting your employees know that while they’ve been reporting to you for years, they’ll now be taking direction from your son or your business partner is a good way to lose their loyalty and undermine the authority of the succeeding party. People have to become comfortable with a person and learn to respect them on their own terms. Your endorsement helps, but it’s not enough to ensure the same sort of loyalty and hard work no matter how well liked and respected you are.

There are two things that need to happen when it comes to transferring a company to a successor: transferring power, and transferring assets. The first is done socially, politically. The second is done mathematically.

Social Succession Planning

When transferring power in a company, the first thing to do is to choose a successor with some sort of stake in the company. Often this is a relative that has at least the financial incentive to do the best job he can, but that alone isn’t enough. They should have the same passion for your company that you do, have worked in it at multiple levels, and have some sort of recognition. No successor should be brought in off the street or from outside the company if they haven’t spent time there learning how things work and how they can be improved. Make sure that their agenda and goals are close enough to yours that there won’t be a drastic change in the company’s direction after you leave, but different enough that the company can continue to grow and doesn’t become stagnant. Most importantly, keep an eye on timing and make sure that you’re releasing control of the business as your successor takes it. If you move too quick or too slow, it can cause friction that will hinder the ability of whoever you’re grooming to take over day to day operations.

Mathematical Succession Planning

Transferring the assets of the business, on the other hand, is much more challenging and a veritable mine-field. The first thing you should do is spend significant time with your financial planner, both for your business and your personal one. Get their advice as to how best to handle the transition. Review the tax codes and see what parts of the company qualify as gifts, which parts must be sold, and how transfers translate into taxes. Consult your legal department as well as to the best way to transfer the name on assets and whether you should do so over a period of time or all at once.

Every company is different, especially when it’s your company. The fear always exists that without you there to run it, it will fall to pieces. However, if you handle your succession correctly, you may live to see a new generation bring the company you started into the next phase of its prosperity.