Guest Column: Succession planning turns startup into legacy

These questions highlight the need for a qualified successor, whether it is a family member or company employee.

Like most people, at the time you started your business, there was probably little thought about how the company would operate without you. The main concern during startup is generally survival, not succession. But if a business is well-established with prospects for a bright future, now may be the time to take a more serious look at keeping it in line, even if you or other key contributors are no longer part of the company.

Investing in people

A big part of the succession process is putting resources to work toward the development of individuals you have identified as key players in any succession strategy. These people may already be part of the company.

Assessment of top staff, based on your own thoughts and the input of others, has a lot to do with determining which individuals are strong candidates for leadership development. The assessment process is crucial, as you will want to invest time and resources into the development process.

If a candidate is not meeting expectations, it could prove to be costly both in time lost and in the financial investment made.

You might determine that the “perfect” candidates for your business succession strategy are outside the company. You may be required to recruit top talent to fill roles that will be critical to the succession plan. This can be an expensive process, and it may require the help of a professional search firm.

Attracting top talent

One of the most important aspects of the succession-planning process is ensuring that you can attract and retain top talent for your organization.

This, too, requires an investment on your part.

If clear successors are identified, it is crucial to take steps to assure that these people remain on the team. Attracting and retaining talent may require compensation plans that provide incentives for key individuals to commit to the organization for the long term.

Communication is a key part of succession planning.

Keep key talent involved in the operation of the company. Speak to them regularly to obtain their input to help solidify their commitment to the business.

A good succession plan involves not just replacing the business owner, but other key individuals as well. Your goal is to have a suitable replacement ready to go in the event that a key executive or contributor departs the company.

Not doing so can put the competitiveness of the company in jeopardy, even if the gap only exists for a short period of time.

Key protection

While businesses most likely have insurance to protect against property loss, it is helpful to protect against the loss of a key individual as well. This could include anybody from a top executive to an employee with specialized knowledge to a successful salesperson.

The loss of such individuals, due to untimely death or disability, for example, could seriously impact a business.

Therefore, business owners may want to consider a “key person” insurance policy on the most valuable people in the company.

While no insurance can effectively replace the loss of an individual, the proceeds of the policy can help provide a financial cushion while remaining leaders work to fill the gap created by the loss of an important team member.

In this case, the company both owns such a policy and is the beneficiary. To determine the value of such a policy, you need to consider factors such as the cost of replacing the employee and the impact to the company’s bottom line as a result of the individual’s absence.

Subject to change

It is important to recognize that succession strategies will need to be updated regularly. From time to time, as businesses and the market change, and as key personnel come and go, you will need to re-assess your plans. The values of key-person insurance policies also may require reconsideration.

A financial adviser may help you develop a succession plan for your business.

Like other aspects of a business, it is important to stay on top of succession planning.

Paula Dougherty, CFP, ChFC, CLU is a Certified Financial Planner with Ameriprise Financial in Springfield. She may be reached at paula.j.dougherty@ampf.com.