What Is Succession Planning
Succession Planning is the process of identifying, training and mentoring key individuals to assume future leadership roles in the organization should a business owner become disabled, die unexpectedly or retire.  Those key players could be from inside or outside the organization.  If you don't plan on selling the business, sooner or later you will have to turn over the business to someone else to run.  It is better to plan in advance to make the transition go smoothly.  That's where succession planning come in.

 Pro:

 1.  Less due diligence is required because you already know the individual

 2.  A family member is most likely to preserve the things you want in the company.

 3.  If your intent is to keep the business in the family this is a good way to ensure that.

Con:

 1.  Family squabbles can tear the company apart.

 2.  Family members may not be interested in making long term capital investment, opting instead to give themselves higher pay in order to take care of the family and have a standard of living.

 3.  No one in the family might be interested in taking on the business.

 

Succession Planning Steps:

1.  Establish your goals:

 

You should identify the answers to the following questions:

      1.  Is it essential that the business remain in the control of the family.

      2.  Is it essential that the business be run on a day to day basis by a family member.

      3.  How would it affect the family if an employee who is not a family member is chosen to lead the company.

      4.  Do you have family members who are shareholders and do they own a majority of the shares.
      5.  How far in advance should the potential successor be named.

2.  Choose a successor:

       Identify what skill sets are required by the successor:
              - Marketing
              - Management (People Skills)
              - Finance
              - Production
              - Industry specific background
              - etc.

Identify the role of the successor [ Management v. Ownership]:
Will the successor have management control or ownership, or maybe both? Ownership can be split  into passive and active shares, giving the active successor the necessary control over the business but providing an equal economic benefit to the inactive shareholders

Identify where the potential successor will come from [family member, employee or outside]. 
Will that individual be a family member, an employee or someone from outside the organization such as a close friend or colleague.  Taking someone from inside the organization has its advantages.  Such individual would already be familiar with the operations of the organization and would require a shorter transition period.  Going outside of the organization offers you the opportunity to bring in someone with new skill set that is lacking within the organization that is essential for future growth.  Going outside the organization also enable you to avoid potential internal squabbles amongst family members or amongst employees which could have a negative on the future of the organization.

You can make the selection on your own or you can put together a transition team to help you decide that question.  A transition team can assist in the planning and execution of the transition thereby ensuring a smooth transition even in your absence.

3.  Establish a succession timeframe:
The transition timeframe should be long enough to give both parties the opportunity to make the transition a success.  Think of the succession timeframe as the time you will be spending with your successor handing over responsibilities and watching him take the reins.  You have to establish specific timeframes for when certain duties will become the full responsibilities of the successor.  You certain don't want to dump everything in his/her lap and walk out the door.  Establish specific tasks and specific times when those tasks will be handed over to your successor.  You continued presence for a period of time acting as mentor will help to make the transition go smoothly.

4.  Establish a training program and timeline:
You have identified the required skill sets and analyzed the potential successor's skills.  Now you have to design a training program to give the successor what he/she is lacking.  Establish the specific tasks and set a specific timeframe for the training to be completed.   If familiarity with certain aspects of the organization is key ensure that the successor gets to work in those areas for a period of time in order to develop a good understanding of they operate.

5.  Prepare for your exit:
What are you going to do with your free time.  Will you still play some role in the organization such as serving on the board of directors. 

What are the tax, investment and legal implications.  Work with Accountants, Attorneys and Investment experts to get these questions answered.

6.  Install your successor:

Give full responsibility to your successor.  Don't hinder your successor in his/her new role.  When customers ask for you, you have to let them know that you are no longer in charge.