Creating an effective workplace succession plan to ensure the smooth sale transition of your business

Among the many aspects prospective business buyers are cognisant of when undertaking due diligence on an enterprise they are looking to acquire, is the depth and quality of management remaining in the business once the owner has departed.

To sustain business continuity, and indeed as a matter of growing the commercial enterprise of a business during its lifespan, succession planning should be an important plan of any business owner’s long-term business plan.

Succession planning is the process of selecting and developing key talent to ensure continuity of critical roles either as the company grows, or when staff leave.

Succession planning means that as a company owner, you actively develop talent, and groom the highest potentials for future leadership roles so that when a senior manager or critical worker leaves the organisation, you have a suitable replacement ready to ensure virtual seamless continuity of service.

The easiest way to identify these roles is to look at the most senior people in your company’s organisational chart. If the company has a well-defined job architecture with function description and renumeration based on responsibilities, this selection will be fairly easy to make.

If succession planning is structured and managed well, senior roles will always be occupied by people who are well prepared and ready for the next job up the management ladder. If not, you run the risk of making bad hires and taken on under-prepared leaders who can threaten the bottom line and viability of your business, and the ability for your enterprise to be successfully sold for the best price.

Succession planning is about identifying critical roles within your business. Not all roles are relevant. Succession planning should focus on roles that are vital to your organisation’s competitiveness and continuity. A junior salesperson or machine operator may be easily replaced. However, your sales manager or head of planning may well be a crucial role.

Once key roles have been identified, the process of selecting key talent comes into play. Most of the time, succession planning focuses on existing personnel within your business.

The final step in the process is developing a process so that when a senior staff member leaves your business, there is a smooth transition to a qualified replacement who knows and understands not only the role, but the operations and dynamics of the business.

Here are a few fundamental points to factor when developing your succession plan ahead of taking your business to market for sale:

1. Have a long-term perspective. That means setting up a succession plan well in advance of taking your business to sale, so that staff are fully ’entrenched’ in the structure by the time you take your business to market.

Does your company have a culture of leadership? For succession planning and long-term leadership development to be a success, there has to be a clear commitment from senior management, including you as the owner and your general manager/CEO.

2. Ensure structured development – tailoring different succession plans to different management levels within the business. This will ensure a smooth ‘domino effect’ of promoting staff when the time is required to appoint from the top down. Senior managers and mid-level executives need to actively participate in mentoring and growing young talent.

Generally, we see that employees with mentors perform better in their roles, are promoted quicker, are renumerated better, have more organisational commitment toward your company, have higher levels of job satisfaction, and underpin reduced staffing turnover intentions.

3, Integrate succession planning with talent management. Talent management starts with identifying how employees can develop their potential along a defined career path. Succession management on the other hand starts with identifying the critical roles that need to be filled, after which candidates are identified who would fit these positions when required.

These two approaches should be integrated with each other to maximise the retention of key talent.

4. Measure outcomes, not process. When evaluating succession planning practices, success metrics should focus on the outcomes instead of the process. Examples of outcome metrics in this context are the number of critical positions that are filled with an internal promotion, rather than an external hire.

5, Be realistic. Make plans achievable, and ensure communication is clear and forthcoming when it comes to managing expectations among staff in the succession plan.

NZ Business Brokers has assisted business owners to draft up and execute succession plans before subsequently taking their business to market for sale, and can help you through succession plan process, so feel free to contact us for an obligation-free advisory session.