Succession Planning Pitfalls You Need to Avoid
By: Barry E. Haimo, Esq.
March 18, 2021
Succession planning is something every organization should participate in, no matter how big or small. Thinking about making big changes in succession for business planning purposes may fill you with anxiety, but it doesn’t have to be this way. Managing your succession planning well can help improve your business — today and in the future, and our process will help get you where you want to be.
Here are some of the most common succession planning pitfalls you should work to avoid.
Planning Pitfall No. 1: Choosing a Successor
It’s not easy to choose a successor, but there are certain steps you can take to make the process easier for you and everyone else in your organization. You should:
Think About Skills and Characteristics
Initially, you may think it’s important to find someone to fill your shoes who is exactly like you, but that isn’t always the best path.
Instead, think about the person as a whole – not simply their characteristics, but their skills too. It’s okay for the successor to your business to be different than you… as long as they have the ability to keep the business successful.
Promote From the Inside
Remember, successful businesses aren’t run by just one person. It takes a whole team of people to be successful, and chances are there’s a good candidate for succession among those people.
The benefits of having someone who already understands the company culture and the way the business works are immeasurable to its ongoing success.
Once you identify a successor, a plan to transfer responsibilities and decision making is vital. Why? Because owners often pass on some responsibilities, while refusing to completely give up control.
However, this won’t be an issue with a clear, thorough succession plan that outlines who has which responsibilities and when those responsibilities transfer. Remember: the more you allow the company’s future leader to actually lead, the more likely they are to thrive in their role when you’re gone.
Planning Pitfall No 2: Designing the Plan
When it comes to succession plans, not just any plan will do. You must have a plan that is realistic and that sets appropriate expectations. You can start the planning process by thinking about goals that create value for your business and then create a plan around delivering on those goals.
Make sure you also communicate the plan to everyone involved, from management to family members that may work for you. Then, be active in the succession plan and transition. This lets others know that the plan must be taken seriously.
Planning Pitfall No. 3: Valuation
A good succession plan involves getting a business valuation. You may think that because it will be years before the succession takes place that you don’t need to have the business valued, but this is a mistake. You cannot make realistic decisions about your business if you don’t know its value. While that value may change over time, a current valuation can help set the benchmark for your planning.
Planning Pitfall No. 4: Financial Planning
Even if you do a good job navigating all of the other pitfalls, this one often gets people. You need more than a roadmap to transition from one leader to the next. You need more than the right leader. You need money.
That means engaging in clear and purposeful financial planning designed to help you ensure that the loss of a key person is not too much to bear and that they are replaceable. Typically, this is funded with life insurance that helps to bridge the gap until the next generation of leaders is ready to fully take the helm.
Bottom line? The more effectively you plan for an eventual succession, the more economical and minimally disruptive it will be when it takes place. If you’re not sure where to start with your succession planning, the professionals at Haimo Law are happy to help.
Barry E. Haimo, Esq.
Strategic Planning With Purpose®
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