When advisors retire: Plan for succession now, not later
Everyone realizes the importance of succession planning, but many wait too long to do so.
Advisors and benefits brokers know better than most that retirement is unavoidable. For those who own their own business, succession planning is a critical task, but one that is often neglected.
A survey by the History Factory found that more than half of respondents did not have a documented plan in place for executive transitions, although almost all of those who participated in the survey agreed that succession planning is more important than ever.
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The survey discovered a pause in executive turnover as a result of the pandemic but said CEO turnover began to pick up again during the second half of 2020, and the pandemic may ultimately accelerate turnover at the top of companies.
Pandemic raised awareness of need for succession planning
The topic of succession planning has gained some momentum as a result of the pandemic, as businesses of all sizes came face-to-face with the possibilities and realities of unexpected disruption. According to Kiplinger, COVID-19 may have initially altered some business owners’ plans to sell or transition their companies, and valuations may have been affected as well. Small and medium-sized business owners can take a few steps to ensure a smooth transition when they decide to make their exit.
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The goal of any succession plan should be to preserve current business while paving the way for an orderly transition to new leadership. The Kiplinger’s article suggests a one-year succession-planning process that includes talking with key stakeholders and putting financial, tax and legal documents in order.
Business continuity
A business continuity plan is an important part of succession planning and should include a strategy for day-to-day operations, an assessment of essential and non-essential processes, an analysis of key employees and positions, a review of facilities, and a plan to protect and back up critical data.
Then a formal succession plan should be developed, whether the company will transition to an outside buyer or perhaps a family member or a current employee. A succession plan should include key information about anticipated timing; potential successors; the value of the business; implementation plans; strategy for communication with employees, customers and family; tax planning; and contingency plans.
The Center for Executive Succession also recommends business continuity planning as part of the succession planning process. According to its survey of chief HR officers, many firms realized the importance of developing business continuity plans separate from their emergency succession plans as a result of pandemic disruptions.
Many firms reported a new focus on business continuity planning as a result of the pandemic. These plans exist as a playbook in the event of a crisis about how the organization can flexibly use talent to fill positions in order to maintain the functions of the organization.
Ongoing sucessions planning vs. emergency planning
In addition, the survey defined two types of succession planning. In ongoing succession plans, companies identify the key roles in the organization and note two or three individuals whose next promotion might be into each of these roles. This allows the development of individuals to gain the skills and experience that will qualify them for their next role. In emergency succession plans, firms identify one person who will be tapped for a role if the incumbent quickly departs the role for any reason.
Transferring institutional knowledge
The History Factory highlighted the importance of transferring institutional knowledge as part of the succession process. Often, leadership transitions are viewed through an individual rather than an organizational lens as the result of the long tenure of many executives.
Eighty-five percent of respondents indicated that the longer a top executive has been on the job, the harder they are to replace, which can lead to transition challenges. Those challenges can be especially magnified in transitioning family-owned or family-led organizations, said the report.
The report outlined five keys to successful leadership transitions that include the following:
- implementing a speedy transition so that new leadership can target organizational stability as soon as possible
- having a formal succession plan in place
- having a solid internal and external communication plan in place to keep customers and stakeholders informed and maintain a positive external profile
- following the example of other companies that have successfully transitioned to new leadership
- providing a playbook or roadmap for new leadership detailing how predecessors dealt with challenges
Selling a business takes time
According to Kiplinger, selling a business can take anywhere from six months to five years. That time can be used to put the firm’s records in order to make it a more valuable acquisition. Having employee confidentiality agreements, vendor contracts and insurance policies organized and digitally available is akin to doing a bathroom remodel before selling a house and can increase the desirability and value of the business, said the article.
Separating expenses
The article also recommends separating owner expenses from business expenses to help give potential buyers a truer picture of the company’s finances as well as helping owners identify expenses they will bring with them into retirement. Finally, the article encourages small business owners to have an audit performed, especially for owners who have maintained their own books, or consider hiring an accounting firm to produce a quality of earnings report.
Kristen Beckman is a freelance writer based in Colorado. She previously was a writer and editor for ALM’s Retirement Advisor magazine and LifeHealthPro online channel. She also was a reporter for Business Insurance magazine covering workers compensation topics. Kristen graduated from the University of Missouri with a degree in journalism.
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