Succession planning for SMEs: For growth and sanity

Written by Paul Wilkey, Brainiact Golden Grove

Throughout my years as a senior manager in both privately owned and public listed companies and as a business broker, I’ve seen firsthand the importance of effective succession planning in small and medium-sized businesses. My journey has taught me a clear lesson: Succession planning is crucial for the sustainable growth, sanity, and work-life balance of business owners.

Let’s talk about what succession planning really means. At its essence, it’s about building and enhancing the human capability within your business to drive productivity and growth. I’ve seen too many businesses falter without it, with owners becoming overworked, burnt out, and hitting plateaus in their businesses.

What is succession planning?

Succession planning is the process of identifying and developing new leaders who can replace old leaders when they leave, retire, or sell. It’s about building capability within your team as the business grows. This includes promoting and employing the right people and developing existing employees to sustain growth.

Many business owners don’t bother with succession planning, either because they think it takes too much time or they’d rather be the master of everything. But this creates delays in processes, stifling business growth and efficiency. On the other hand, people who succession plan fill the roles with the right people and develop them. So the owner ends up working on the business rather than in every aspect of it, enabling it to grow and scale.

Why should you have a succession plan?

Having a succession plan in your business is essential for two main reasons: it helps your business grow and keeps you and your team sane. If you, as the owner, neglect to train your staff for managerial or supervising roles, you become the go-to for every single business decision and strategy. This will inevitably lead to bottlenecks and delays, snowballing into chaos. With a good succession plan, the right people are in the right roles, allowing the business to operate and expand in a controlled and organised way. You have structure.

This ties in with the fact that succession planning helps with sanity. With a succession plan, as the business owner, you can focus on the big picture instead of getting stuck in day-to-day operations. This has multiple positive flow-on effects for your team. You become the employer of choice by providing opportunities for training and promoting your employees. You not only boost the morale and motivation of your existing team, but you also attract good staff who want a solid growth path for their careers.

Another reason succession planning is so important is when it comes to the point where you want to exit or sell the business, having a management team in place makes handing over or selling a lot easier. Buyers will see they can step in and manage without having to be involved in every little detail, which can make your business worth more. There’s also the risk side. If the business owner needs to be out of action for a few weeks for whatever reason, a succession plan means you have people who are ready to step up and keep the business running.

Start planning early

Start thinking about succession planning as soon as you start your business. You might not be able to implement a plan immediately, but having a clear vision of where you want your business to be in five years is very valuable. This vision should include your financial goals and what your team needs to look like to reach those goals.

For example, if your goal is to increase your yearly earnings from $200k to $2 million, you should sketch out a team structure that could help achieve this. At first, you might be handling a lot of different jobs yourself, like sales, marketing, and admin tasks. But by figuring out this plan early, you can determine which roles are most important to fill as your business grows and can support new hires. With this planning, your business not only grows effectively but also in a way that everyone understands their part in that growth.

Characteristics of a strong succession plan

An effective succession plan is tailor-made to your business. There is no one-size-fits-all succession plan; it should reflect your specific goals and adapt to how fast or slow your business is growing. The finances and progression will go hand in hand in implementing your succession plan. Say, for example, your goal was to have $1 million in 2 years, but you did not reach this goal. Clearly, you don’t have the capacity to fill the organisation roles you planned. That’s okay, as long as you adjust your timeline and plan to the actual growth pace of the business.

A good succession plan ties closely with your overall business strategy, including how you plan to grow and what new products or services you’ll offer. It’s about strategically managing human resources as the business expands.

If you want to sell your business, a good succession plan will have a solid management structure, where the new owner can work on it, not in it. It makes your business look much more appealing and valuable to prospective buyers because you’ve already done the development and training that they no longer need to invest in. But remember, the ultimate goal of succession planning goes beyond helping you exit from the business. It’s about creating a self-sustaining enterprise that can thrive, whether under your leadership or that of a successor.

In my career, I’ve seen the benefits of succession planning from both angles: enhancing operational efficiency and preparing for a profitable sale. I was part of a privately owned business where the owners had no intention to sell yet still implemented succession planning as a way to improve their operations. This not only made the business more efficient but also significantly increased its market value when the owners eventually decided to sell.

A lot of businesses have the misconception that succession planning is only for those who are planning to sell their business. In fact, succession planning is there to make things run more efficiently, meet the demands of growth, and build a better business – it’s only a bonus that it makes your business more sellable.

Strategies for succession planning

For SME owners looking to start or refine their succession planning, consider the following strategies:

  • Start now: Think about future planning early on, making it part of your overall business strategy.
  • Build human capabilities: Focus on growing the skills and abilities of your existing team members.
  • Be flexible: Your plan should be able to change as your business grows or faces new challenges.
  • Support and communicate: Keep talking to and supporting potential leaders in your team to get them ready for their new roles.
  • Look inside and outside: Consider promoting your current team members and also bringing in new talent for key positions.

The more successful succession plans mix promoting from within your team with hiring new people. It’s important to choose people for leadership roles not just based on their current job performance but also on their potential to lead. Even if someone is remarkable in their job, it doesn’t mean they’ll be good at or like a leadership role. Trialling employees in leadership roles and giving and receiving honest feedback can help avoid placing the wrong person in a key position.

Common misconceptions of succession planning

In my experience selling businesses, many owners think succession planning is a short-term project rather than an integral part of long-term strategic planning. They’ll just pick their best technician for a management role without considering if that person is actually suited to lead. In the end, they lose a great worker and gain a bad manager because that person was thrust into the role without the right support or training. Succession planning shouldn’t be rushed.

Another mistake owners make is thinking succession planning is simply putting people into roles. Successful succession planning is about knowing your team well. It’s important to recognise who is ready and willing to take on more responsibility and who is best left in their current role. It takes intentional planning, open communication, and a supportive environment.

Skipping these essential steps and trying to make quick fixes at the last minute doesn’t work. It’s like owning a house on a nice street but you let it deteriorate over the years. When it’s suddenly time to sell, you’re scrambling to fix everything from the paint job to the garden. If only you had maintained the house the whole time, the process of moving on would’ve been much easier. This is how you should look after your business.

If you treat your business like a cherished home, maintaining it regularly and planning for the future, selling it would be as simple as adding a fresh coat of paint. More importantly, you would have enjoyed running a thriving, well-organised business, just as you’d enjoy living in a beautiful, well-kept home.

Regardless of where you are in your business, start considering succession planning as an integral part of your strategic planning. Succession planning can safeguard your business’s future, enhance its value, and give you a more balanced and fulfilling professional life. Understand your team’s ambitions and capabilities, and begin crafting a plan that supports your business’s growth and well-being.