Succession planning and the development of new leaders remain a priority in the changing economy. A sound succession plan can be a prudent step for most small business owners and is essential for some.

Although an increasing number of people are opting to stay in the workforce after reaching retirement age, leaders are constantly departing from organizations and moving on to other endeavors.

“Millions of aging Baby Boomers who have founded businesses are now past or approaching the age of 60,” Marshall Goldsmith, author of the books Succession: Are You Ready? and What Got You Here Won’t Get You There, recently wrote at Harvard Business Review. “In a related vein, more than half of all family businesses expect a leadership change by 2013.”

However, relatively few firms appear ready for this change.

In 2008, 63 percent of firms were expecting at least one owner to retire in five years, according to the 2008 Succession Survey, by the Private Companies Practice Section of the American Institute of Certified Public Accountants. An even greater concern was that 32 percent of these firms would have two or more partners leaving within the next five years.

At 38 percent of the firms, the senior partners didn’t feel that the younger partners were ready to step up to leadership positions.

The succession-planning process can be more difficult for a small or mid-sized business because, according to Inc.com, “succession deals not only with management but ownership of the business, and ownership is usually in the hands of one person, a family or a partnership.”

It is a complex, and often emotional, issue. After being in charge of a business for years, possibly decades, when entrepreneurial leaders — especially founders — contemplate passing the baton, “they react as anyone would to something very unfamiliar: with trepidation and avoidance,” Goldsmith wrote.

Yet small businesses will only be successful in meeting their mission if their leaders are able to pass on their knowledge and abilities to meet ever-growing challenges.

Every company is different, but the 2008 PCPS Succession Survey provides insights into established best practices for succession planning, laying the basic groundwork for a tailored approach for finding a small business successor:

• Create a plan. Recognize the need to plan, and embed succession planning into the organization: Treat the actual planning as an everyday business activity rather than as just another item on the firm’s to-do list. Start operating the firm under a “procedures” model, creating an environment where the next leader can step into a fully functioning, supported system rather than a position to make up new rules of business. Create a written succession plan that documents firm policies and sets a vision for internal team members.
• Fix retirement issues. Set a mandatory sell-of-ownership age and stick to it. “This date should be far enough in advance to prepare your successor and the rest of your employees for the transition,” the National Public Accountant (via Entrepreneur.com) advises. Define “retirement” to prevent misunderstandings and disagreements. (Under what circumstances will retired owners still be allowed to work for the firm? In what position?) Also consider setting up a partially funded retirement plan (perhaps 15 percent to 20 percent), as this takes much of the owner’s pressure out of the succession process.
• Develop future leaders. Chart the firm’s skill sets, and identify managers or other staff with potential. Consider potential successors on their individual merits; for family-run businesses, if you want to keep it in the family, groom only the members who possess the appropriate skills and talent for the job. Understand the difference between a top-notch manager and a leader. In addition to mentoring promising staff, get formal leadership training for the appropriate firm members. Develop client transition by getting high-potential staff involved with clients.
• Set a timetable for new leadership. Don’t underestimate the amount of time it can take to prepare a successor. In planning for a transition, the firm should allow enough time for the person to qualify for, and grow into, his or her new role. Small business counselor SCORE advises setting up a training timetable and a schedule for shifting control of the company, as this planning “helps motivate your successor to move through his or her training program quickly and successfully, with a clear understanding of what the coming roles and responsibilities are going to be when you move out of day-to-day operations.”

We’ve only scratched the surface here. But perhaps the key thing business owners should keep in mind when thinking about developing a plan for who will succeed them is that any transition must preserve the continuity of leadership. Most important, according to the online Business Owner’s Toolkit, is that “the succession of ownership and management be perceived as a process rather than an event.”

Resources

Why Entrepreneurs Sabotage the Succession Process
by Marshall Goldsmit
Harvard Business Review, Oct. 8, 2009

2008 PCPS Succession Survey – Revelations, Conclusions and Recommendations
Private Companies Practice Section (American Institute of Certified Public Accountants),

How to Choose a Successor
by Elizabeth Wasserman
Inc.com, Feb. 1, 2010

9 Succession Planning Tips for Accountants to Give Themselves
by Phyllis Bernstein
The National Public Accountant/Entrepreneur.com, November 2005

Developing a Succession Plan
by Heath Finn
SCORE

Planning for Succession
Business Owner’s Toolkit

Additional

Top 10 Ways to Succeed at Succession Planning
by Gordon Neufeld
TalentMgt.com

Family Business Succession Planning
by Susan Ward
About.com: Small Business: Canada

A 2009 Tuneup for Your Firm’s Succession Planning
by Dominic Cingoranelli
Journal of Accountancy, March 2009