Succession planning may be in the back of your mind, and you may actually have a plan defined, but many business owners don’t put a lot of time into thinking about what makes the plan effective. Instead, they’re too busy focusing on the day-to-day tasks to keep operations running smoothly.
But if a company is going to survive into the next generation, it is critical for the owner to be planning how that’s going to happen, says Cheryl A. Parzych, executive vice president of wealth services, First Commonwealth Financial Corp.
“If your business is to succeed after your succession, you must consider the very fundamental questions of who and when,” Parzych says. “You must understand what has made your business success possible in the first place and assess the competencies of future owners, then develop those key players in the plan.”
Smart Business spoke with Parzych about how businesses can successfully transition by tapping talent and grooming leaders to take the organization into the future.
What do you need to ask to set the tone for a succession plan?
‘Who?’ and ‘When?’ are the core questions that set the direction for business succession plans. Who do you prefer to succeed you, and when do you see this happening?
While many owners do not formalize a succession plan, they instinctively know the answers to these questions. For example, you might say that after you die, your son or daughter will take over the business.
If you have clarity on these fundamentals, there are many specialists who can help you to design the most effective plans to execute the legal transfer. What becomes vital is whether your chosen successor is or will be capable of taking over at that time when you plan for your transition. You can bring more certainty to your plan by gaining objective insight and assessing the talent of your successor.
Then, you can move on to closing the gaps.
Why is gaining objective insight so important to the succession process?
Transitioning your business to the next leader is a very emotional step. If your business is to get what it needs to thrive, you need to identify the managerial, leadership skills and other characteristics that enabled the business to succeed in the first place.
Are you the owner of those traits? In other words, does the business succeed because of your skills and your characteristics? Or have you developed a complementary or symbiotic leadership team that can carry the company mission forward?
If you are having trouble stepping back for an objective look, advisors close to your business may prove invaluable to you at this time. They can help identify which owner characteristics drive the business and where your personal qualities might, in fact, get in the way. Also, executive coaches are well equipped to work with you to identify the natural talents you have relied on for years, perhaps, without realizing it. These characteristics and strengths will be lost during transition unless you take deliberate steps to develop key talent.
How can an owner identify key talent?
Who is your preferred successor? Assess the abilities of all prospective successors. Do the potential owners have the skills and characteristics to continue the business successfully and grow it moving forward — or are they emotional selections? At what point do these prospects fall in terms of readiness of skills and characteristics? Are there others who have been critical to your success and should play an important role in the succession plan? Don’t forget those who might have skills essential to the transition itself such as project management, communications, etc.
How should an owner develop planned successors?
It’s important to create a customized development plan for future leaders, and this is possible now that you know who you want to transfer the business to and the current competencies of the successor and important team members. Focus on talent development and make it one of your top-three business priorities. In fact, your business cannot have a successful year if it fails in talent development. To create and execute effective talent development plans, you may need to engage specialist resources to help you while you remain the visionary and executive sponsor.
How does an owner know if the talent will be ready to take over when he or she wants to transition the business?
Though parents hoping to hand off to their own children often have a hard time with this, you may objectively find that your future owner is already close to or ready for succession. Continue to engage your ready successor and position him or her for the coming transition, as this will encourage acceptance by employees, customers, vendors and advisors.
You also have to honestly acknowledge if your intended future owner is not ready or if he or she lacks the core leadership and/or interest to carry the business forward. If this is the case, again, your advisors can lend support. Open discussions with advisors can help identify and plan for realistic alternatives. Advisors can also support difficult conversations with concerned family members and employees.
Give your successor the opportunity to succeed. Tune in to his or her talent, skills and characteristics, and watch how that person interacts with employees, advisors and other stakeholders. It’s a critical mistake to allow a budding future leader of the business to go unnoticed. Seek guidance as needed. Commit to talent development and customize a succession plan with your advisor, who will hold you accountable and help you synchronize talent development with your transition timetable. This will make your succession plan viable and bring you great peace of mind so that you can enjoy the process and look forward to the next chapter in your life.
Cheryl Parzych is executive vice president of wealth services at First Commonwealth Financial Corp. Reach her at (724) 778-3973 or email@example.com.
Insights Wealth Management is brought to you by First Commonwealth Bank