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Business Management
Succession Planning for SMEs
By
2024-07-05
Succession planning might sound like a boring business term, but for business owners, it’s about making sure your business keeps thriving when you're ready to step back. Think of it like the award-winning TV series Succession, but ideally with fewer family feuds, backstabbing and a more emotionally stable leader at the helm than Logan Roy. The absence of succession planning in the series meant that when the leader and patriarch needed to step down, chaos ensued, creating family divides and nearly destroying the business. Succession planning is about setting up your company to succeed without you, ensuring a smooth transition of leadership.
In my career as a chartered accountant, business advisor and coach, I’ve seen the crisis that can follow from a business owner’s departure, whether due to death, illness or retirement. Less than 25% of SMEs have a succession plan, and those that do, often don’t have it properly documented or communicated to all stakeholders.
The reasons why succession planning isn’t seen as a priority in a business are varied. The business owner often avoids thinking about his or her mortality, or what life might look like without the business as a central focus. In the growth stages of a business, daily operations are a priority, and any kind of strategic planning is left behind in the scramble to keep up. Some business owners are simply not aware of succession planning as a concept. In the family business environment, where talks of succession can be fraught with emotional issues and family infighting, succession planning is avoided to keep the peace.
Key Succession Planning Questions
Succession planning can take different forms, depending on the type of business you own and the extent to which you as the business owner want to step back. Do you want to sell your business and exit completely? Stay as the owner and shareholder but hand over day-to-day operations to a new leader? Do you have a family member who is ready to take the reins? Do you need the capital from the sale of your business to fund your retirement? Do you have an employee or second-in-charge ready to take over as leader of the business? These are all questions that are answered in the succession planning process.
Common Pitfalls
There are a few common mistakes that I see in succession planning when it takes place in an SME.
In Family Businesses, not Choosing the Family Member who is Best Suited to Run the Business.
Taking over a family business means becoming a leader, and not everyone is equipped or willing to take a leadership role.
Not Allowing the Successor to Gain Control.
Most often, the current owner must fully exit the business to allow the successor to take control and be seen as the new leader in the eyes of employees and key stakeholders. If there are two leaders, it can divide the business and undermine employee morale.
Not Aligning Retirement and Succession Planning.
The business owner must start the succession planning process with the question: "what do I want?” If the owner has not thought about what comes next for them, the succession will inevitably fail as they have no plan for their future. The question of finances must also be addressed, as the owner cannot expect to continue taking a salary or dividends from a business they no longer own.
Not Using an Expert Advisor in the Succession Planning Process.
The plan often involves negotiation, interpersonal dynamics and compliance consequences that only an experienced advisor can navigate. Having an external party who represents the best interests of the business, and not any individual party, is crucial to a successful outcome. This includes the sale of the business. The majority of business owners do not have the skills required to manage the sale of their business, with its legal, tax and contractual intricacies.
Succession planning is a concept that SMEs need to consider carefully. As a business owner, you want to protect your legacy and ensure that what you have built doesn’t come crashing down when you exit. The best place to start is to approach an expert, who can ask the right questions and help you plan for a secure future for your business.