November 28, 2014

Small Business Advice: The importance of succession planning

The importance of succession planning

"If you want one year of prosperity, grow grain. If you want 10 years of prosperity, grow trees. If you want 100 years of prosperity, grow people." ~Chinese Proverb

Jerry Osteryoung | 11/4/2012

Every business should have succession plans for its key personnel as part of its overall strategic plan. It is critical to identify personnel vulnerabilities and determine how you might overcome them. It is so easy to ignore these issues, but doing so puts the firm in a very precarious position.

I was helping a firm that had lost a key executive to an unexpected illness. When I was called in, the firm was reeling from the loss of this very well-liked executive. In addition to the staff’s grief, the business was in dire straights as they had been unable to find a replacement. Without someone to take over, the executive’s work fell to his staff who lacked the necessary experience. As a result, the profitability of firm fell dramatically. Had this firm had a succession plan in place, they would have been in a much better position.

Succession planning must address the loss of key staff members both in the event they pass away suddenly or become significantly incapacitated and in the event they simply retire. The difference between these two situations, of course, is how much time you have to find a replacement.

There are two general ways a business can work through the unexpected loss of key personnel. One way would be to ensure that the remaining staff is able to pick up the slack. That way, the business can keep moving forward until a replacement is found either by promotion or a new hire. A second alternative would be to hire someone who can come in and fill the role on a temporary basis. There are many firms out there that specialize in locating temporary CEOs or CFOs.

When planning for the retirement of a key executive, you can take one of two approaches. Firstly, you can groom a successor in advance so they are ready to step in once the executive steps down. This plan should involve providing any requisite training and experience.

If the firm is small, however, providing the necessary training may be cost prohibitive. In the event grooming an internal candidate is not a feasible option, the business can hire a replacement in advance of the retirement, which would allow the successor an opportunity to work alongside the executive, thereby helping ensure a smooth transition. Of course, as with all hiring decisions, a significant amount of time and money should be invested in finding the right person for the key position.

Now go out and make sure you have succession plans in place for your key personnel. It is important to be prepared to take action in the event of loss through retirement or an unanticipated event.

You can do this.

Other small business advice columns from Dr. Osteryoung are here. Note: Articles older than 30 days require registration (it's quick and free).

Jerry Osteryoung is a consultant to businesses - he has directly assisted over 3,000 firms. He is the Jim Moran Professor of Entrepreneurship (Emeritus) and Professor of Finance (Emeritus) at Florida State University. He was the founding Executive Director of The Jim Moran Institute and served in that position from 1995 through 2008. His newest book co-authored with Tim O'Brien, "If You Have Employees, You Really Need This Book," is an Amazon.com bestseller. He can be reached by e-mail at jerry.osteryoung@gmail.com.

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