6 Common Succession Planning Problems

Are you running into problems with your succession planning?

As you’re probably aware, succession planning is essential for a smooth transfer of business ownership. When succession planning is done well, leadership is developed in a timely manner and the transfer in ownership doesn’t result in lower returns on equity and profit. But how do you ensure that your succession planning will yield good results? And what do you do if you run into problems before your planning is done? 

Let’s take a look at 6 common succession planning problems.

 

1. Ambiguity

One of the biggest reasons to create a succession plan is to avoid ambiguity during the succession. Ambiguity increases risk and risk opens the door to all kinds of problems. Some people are hesitant to be too specific in their succession planning because they don’t want too many constraints. Overcome this fear and get rid of as much ambiguity as you can. In uncertain times, people generally want more, not less, guidance.

 

2. Procrastination

This is probably the biggest problem people have when they approach succession planning. Preparing your succession plan forces you to think about your own mortality and that can be scary. You may find it very uncomfortable to think about your own resignation, death, retirement, or even disability. 

Prepare yourself to tackle your succession planning by thinking about what could happen if you don’t. If something happens to you or to another key person and you don’t have a plan in place, your business could begin to crumble very quickly. Think of succession planning as a way to buoy up your business and make it even stronger.

 

3. The “Like Me” Bias

When thinking about your successor, it’s not uncommon to narrow your view to someone who is like you. This is a well-documented tendency. Men tend to pick men, women tend to pick women, scientists tend to pick scientists, etc. The problem with the “like me” bias is that you might overlook the talent your business needs because certain people don’t fit your mould.

To avoid this problem, write up a description of the characteristics and skills a person would need to effectively fill the position and then try to hire on those characteristics instead of a “type.”

 

4. Lack of Strategy

If you approach succession planning the way you approach your daily to-do list, you might end up with a plan that seems to have all the right parts but lacks a cohesive, overall strategy. Start with a goal, i.e., to create value for the business even as you retire and then make sure that every part of your succession plan lends itself to this goal.

 

5. Hypothetical Valuation

Neglecting to acquire a rigorous valuation is a very common problem in succession planning. Many people think that since the actual succession won’t take place for several (or many) years, there’s no point in getting the business valued now. The truth is however, that it’s difficult to make decisions regarding the succession plan without a current and accurate business valuation. Yes, the valuation will change over time, but it will give you a workable snapshot of your business for planning purposes.

 

6. Lack of Updates

Once you have finished your succession planning, you’ll need to revisit it every few years. Personnel changes, industry transitions and market conditions all contribute to needs for updates of your succession plan. Even if you don’t need to make major changes to your succession plan, you may find that it improves every time you revisit it. After all, in two or three years from now, you’ll have much more experience and maturity than you have now and that experience can help you to improve your succession plan. 

An outside look at your succession plan is also helpful. For an objective outsider’s opinion of your succession plan, talk with our business experts at Altus Financial. They can help you with these common succession planning problems and any other challenges you come across.