6 Reasons Every Business Should Have A Succession Plan

Most companies have a shallow idea of what to do if the key person in their company passed away, fell ill, or resigned and had to be replaced. Studies show that almost 60% of small businesses do not have any succession plan for their business or executives.

A succession plan is a strategy to identify and groom employees to ensure that a business has the right leaders should the need arise. Succession planning is a component of the talent management process that offers a way to identify key roles and people with the right skills to fill them.

If you want to maintain the success of the hard work you put into your business, there are many strategies that can help.

For example, you can take out shareholder protection insurance to ensure that no unwelcome beneficiary takes over a business shareholding in the event the original shareholder passes away.

Alternatively, you can write down a formal plan that outlines exactly what happens when someone as important as a founder or other key persons departs the business.

With that said, let us find out why your business needs to have a solid succession plan in place.

Minimal recruitment fees

Without a succession plan in place, you will have to bear the cost of recruiting someone to fill a vacant position. Experienced people are not easy to find because they are working elsewhere. You would have to entice them with a higher paycheck which might be out of your budget.

Your new recruit might even bring their own employee. They will cost you more but you will pay because the business is at stake. Always have a succession plan in place for several vacancies to hire your inside employees.

Maintains your brand identity

It is not uncommon to hear of employees who were recruited from outside, came with amazing promises to do great things, and end up doing the opposite. They damage the business reputation. These new recruits have not grown inside your company and do not truly understand the values of your business.

Succession planning will help your company identify and groom potential successors who understand the company’s brand, mission, and vision and the needs of their customers because they have grown up in the business.

Promotes better communication

Succession planning promotes communication. As the heads of departments of an organization come together to strategize on choosing potential successors, they interact with the employees. During these interactions, they are able to find out about their interests, ambitions, and problems they are encountering. Essentially, they get to open to one another through this grooming process.

Open communication is one of the most important factors in any business relationship and helps to promote growth. When you are ready to introduce your successor to the other employees and key customers, tell them you have specifically hand-picked them. It will be easier to introduce an insider because the customers and other employees are already familiar with them.

 Motivates your employees

You will be sending out a positive message to your employees when you formulate a succession plan. They will see that you are involving them in the future of the business and that you are committed to them by offering them leadership positions. Nothing beats that feeling of knowing that your boss is interested in your success.

Employees remain loyal to their employers when they see themselves as respected members of an organization. It motivates them to work harder which positively impacts the bottom line of the business.

Gives potential successors time to grow

When your company has identified suitable candidates, the grooming process can begin. Succession planning enables you to groom the candidates because you have already laid out a definite plan. For some, grooming may be performed in the form of coaching, mentoring, increased responsibilities or job shadowing.

Some may have to go back to school and get certified. When you take advantage of the time you have and use it to help potential successors acquire skills, they will be encouraged to achieve maximum growth.

Protects your business from disasters

It is easy to get lost in your daily-to-daily activities and forget that anything could go wrong. So many things could go haywire. For example, a top executive in your company who has worked diligently for you might be lured by the promise of a higher salary and leave you without notice.

This sudden change can cause your business to spiral downward if you didn’t have an alternative. Succession planning proofs your business from such disasters.

How prepared is your business concerning succession?

Succession planning is aimed at protecting your business. It may seem daunting at first but the sooner you begin the process, the better it will be for the stability of your business in the long term.

 

This article has been financially reviewed by Ben Heir, CFA Last Updated on December 27, 2021 .

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Philip Horton

Philip Horton

Philip is the Head of Content for OnlineMoneyPage. He is responsible for researching and writing articles. He is also one of the co-founders of OnlineMoneyPage.

He is an experienced finance professional with a proven track record in the field of financial advisory. He has a proven history of success in clients’ personal finance planning. His core competencies include: Financial Planning & Analysis, Budgeting & Forecasting, Financial Modeling, Income Streams Improvement, and more.

Philip holds a MA degree in financial management and is a CFA and CFP charterholder.

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