Woody Allen’s famous quip, “I don’t want to achieve immortality through my work. I want to achieve it through not dying,” perfectly expresses the kind of wishful thinking that often gets in the way of preparing for the future.
A huge wave of baby boomers has been pushing through the workforce and is now at retirement age or within sight of retirement. According to the recent U.S. census, over 65% will work past the age of retirement. Many companies put off succession planning until their owners are nearly into their 60s. In some cases, this is already too late—planning for a smooth transition of both the leadership and ownership of a business ought to begin 10 years or more before the retirement of an owner in order to realize the benefits of such a change.
But talking about succession planning remains an awkward subject. Many owners balk at starting the conversation because it requires talking about matters of mortality and uncertainty and because high achieving professionals and business owners tend to have a lot of their personal identities wrapped in their professional identities.
We have put together our views on the 4 Components of Effective Succession Planning, to help you kick start those conversations:
CLARITY: This means developing a deeper understanding of what succession means for your business and the transitioning personnel. The impact of succession will be both financial and personal. The financial impact can be measured through a business analysis and valuation process. The personal impact can be managed through working with a coach to create a vision and plan for transitioning to “the next phase of life.”
COMPENSATION: Compensation or lack thereof drives many succession plans. The most obvious reason for a succession plan is to compensate principals fairly for the firm they’ve built with their entrepreneurial spirit, including the physical assets and intellectual property they own, and for the money they’ve invested in their businesses. A good CFO or financial consultant will guide you through this process to select a method of business valuation that is aligned to your business strategy.
COURSE: Once you have clarity on what succession means for your business and a compensation process that is aligned with your overall strategy –now it’s time to put together a detailed action plan. This plan includes identifying and developing future leaders, steps for client transition, metrics, and support mechanisms such as coaching and training. Succession planning is not a quick fix that a company can decide and implement. It takes time to develop an effective leadership program and even longer to be able to benefit from the results. That’s all the more reason to get started immediately.
CLIENTS/CUSTOMERS: Involving clients early on in the succession process has proven to be to deliver the most effective transitions. Professionals, owners, and clients need to work through succession issues together because ultimately everybody wants the same things; continuity, predictability, positive working relationships, and high levels of quality, comfort performance, and trust. To maintain these critical relationship elements, it is important to get an early start toward shared goals.
The basics of effective succession planning are straightforward: start early, involve your clients/customers, stay on top of it, and address everyone’s needs fairly and firmly. You want to establish an understanding that decisions are going to be made in the best interests of the business, that [owners] will be fairly compensated for their cooperation in transitioning clients, and that these discussions are going to take place.
Companies and professional services firms of all sizes need to be asking these questions – Which important clients and people need to be transitioned in the next three to five years? Do we have the capability and the right personnel to continue to serve those clients at a high level? Do we know the billings attorneys’ intentions? The clients’ intentions? Have we initiated a discussion with the clients?
Contact firstname.lastname@example.org to find out more about how B2 can help you with your succession planning.