At the age of three, Sebastião became King of Portugal upon the death of his father, João III. Twenty one years later, the young king disappeared in battle during Portugal’s disastrous attempt to conquer Morocco. He left no heir, kicking off a succession crisis. Amid the confusion in which even the Pope put forth a claim to the throne, the powerful King Philip II of Spain was able to entice the Portuguese aristocracy to his side and defeat a rival claimant in war to bring Portugal into the Spanish Empire, effectively ending Portugal’s moment as a world power.
The moral of the story? Even a twenty-four-year-old needs a succession plan. And it’s not just in case you go missing in Morocco. You’ll want to develop a plan for the lifecycle of your business and your involvement in it. If everything goes right, you’ll eventually want to retire or sell the business. And if something goes wrong, you’ll want to be prepared for that, as well. When thinking about the future of your business, here are some mistakes to avoid.
Not Planning for Succession from the Start
After getting an idea for a story, many writers like to figure out exactly where the story begins and where it ends. Perhaps entrepreneurs should think that way, too. When you start with an ending in mind, you’re in a better position to give the plot the right shape, introduce your themes early and develop them dramatically, and foreshadow the ending along the way. This is a useful frame for thinking about the future of your business: not just how to start it and how to grow it, but how to get it to where you want it to ultimately be and how to sell it and retire.
The moment you start thinking about starting a business is the best time to start succession planning. While you’re working out just how to get started, you should also be thinking about how your involvement with the business should end. Do you want to grow quickly and cash out quickly? Do you want to ease yourself out as the business matures? Will you look for a buyer when you approach retirement age, or pass it down to a family member? What do you want your role in your business to be 10, 20, 30 years in the future?
The answers to these questions might change over the course of your involvement in the business, but thinking about them from the start lets you build with a destination in mind. Your goals—both long term and short term—determine your strategy. The more detailed your goals, the better your strategic planning will be.
Starting Succession Planning Too Late
If you’ve already been in business for years and haven’t considered succession planning, now is the time to start. When you start early, you can start identifying good candidates for succession, putting them into leadership roles, giving them more responsibility, and if they’re up to the task, training them to keep the business running for decades into the future.
If you’re approaching retirement age and planning to sell your business, you’ll want a succession plan in place sooner than you think you’ll need one. Finding a buyer, negotiating the sale, and closing the transaction could take years of back and forth between lawyers, and if a deal falls through, it’ll take time to find a new buyer.
Maybe you have no plans to sell the business and you’re still 20 years from retirement. You still need a succession plan in place in the event of your passing. If you’re the only one with access to critical business functions, your business ends with you, and so do the livelihoods of your employees. In this case, it’s not just a good idea to have a plan in place; it’s your responsibility as a business owner.
Having an emergency plan is also useful if someone has to temporarily step into your shoes. What happens if you have a medical emergency and are out of commission for a while, or have a mishap with your passport and get stranded in a foreign country? If you are the only one who can access vital documents and systems, being unavailable for even a few days could be catastrophic for your business. Decide as soon as possible which employee will be trusted with the keys to the building, so to speak, if you can’t be there to open up the shop for a few days.
Lack of Transparency in the Succession Planning Process
Whether its poor recordkeeping or secretive decision-making, a lack of transparency can make succession harder than it needs to be. Clean books are a necessity if you want to sell the business. Potential buyers will want to know every aspect of cash flow, revenue, growth potential; they’ll want to know how much inventory you’re carrying, what products are selling, what your costs and expenses are. Start as soon as possible transferring your records from spreadsheets to the right bookkeeping and enterprise resource planning system.
If you’re choosing from multiple succession candidates, you’ll want the process to be as transparent as possible—especially if they’re family members. Outline your criteria for a successor and set clear goals. Involve others in decision-making if possible. When someone takes your place, you’ll want every employee as confident that you made the right decision as you are.
Finding the Right Successor Doesn’t Have to Be Difficult
Handing your business over to a new owner seems like a daunting task, especially in owner-centralized organizations, where everything flows through one person. Our experts in human resources, organizational development, management and leadership development, and training and onboarding are here to help you overcome every hurdle standing between you and a business that can thrive for generations to come.
