Advice for Small Business Succession Planning
According to reports from 2023, a quarter of Australian businesses don’t have a succession plan for senior roles. Even more alarming, 1 in 10 small business leaders agree that a succession plan is unnecessary. This kind of cavalier attitude towards succession planning can be tolerable during times of economic and workforce stability, but in an era like today’s, it can be something of a death wish for small businesses. Job mobility in Australia is at a 10-year high, with many high-level employees abruptly leaving workplaces that have no strategic plans to fill the gap. As tempting as ignoring the need for succession planning might be, a situation like this can lead to significant social, structural, and financial fallout.
So, what is a succession plan in business? In simple terms, a succession plan is a course of action that is ready to be implemented if and when leaders within the company decide to move on. This plan will identify and prepare the individuals who will take over leadership positions and determine how the transfer of ownership and management will occur. This is all done to ensure the successful continuation of said business. At Duffy & Simon, we specialise in business succession planning to help small businesses and larger companies not only survive major internal changes but also thrive in their aftermath. This process might involve assisting with the development of strategies, drafting and reviewing legal documents, mediating and resolving disputes, and generally just providing support every step of the way.
If you’re considering succession planning as a small business owner, we’re here to help. We’ll take you through the basics of business succession and set you up for success!
Why Is Succession Planning Important for Small Business?
Succession planning is important for small businesses because of the unique challenges they face in securing their futures. Unlike large corporations, small businesses usually have limited resources, which makes them more vulnerable to bankruptcy. In addition, there is more likely to be a personal connection between owners and their enterprises in the case of a small business, and this emotional attachment can cloud judgement. When you view your business as your life’s work or passion project, it can be hard to let go or make objective decisions about its future.
Without a solid succession plan, small businesses are at risk of facing operational chaos, loss of value, and even complete shutdown when the current leadership steps down. Additionally, family-run businesses may struggle with potential conflicts among family members about the future direction of the company. By proactively establishing a succession plan, small business owners can ensure continuity, protect their legacy, and create a smooth transition process that keeps the business thriving.
A Wider Lens: What Is the Importance of Succession Planning in a Business?
The importance of succession planning goes beyond the individual owner; it also impacts the entire ecosystem of a business, creating stability for employees, clients, and other stakeholders to ensure everyone knows what to expect in times of leadership transition. For employees, succession planning offers reassurance about job security and career development opportunities. For clients, it reassures them that the service and quality they rely on will remain consistent, even if ownership changes.
Succession planning is also essential for a long-term business strategy, helping the organisation align its growth trajectory with future leadership goals. Duffy & Simon’s approach to succession planning incorporates all of these factors, considering insights from the current owner’s perspective as well as a broader viewpoint that takes employees, clients, and the long-term viability of the business into account.
What Kind of Business Needs a Succession Plan?
The types of businesses that need succession planning are truly diverse—small businesses such as sole proprietorships, partnerships, and family-run enterprises all require it in certain circumstances. For instance, a sole proprietor may need to decide who will take over once they retire or pass away, while members of a partnership must address how ownership will transition if one partner leaves. Family businesses, which are often passed down through generations, have a particularly strong need for succession planning to mitigate potential conflicts. At Duffy & Simon, we understand the unique requirements of each business structure and tailor our strategies to fit.
What Size Business Needs a Succession Plan?
A common misconception is that only large corporations require succession planning due to their complex structures and numerous stakeholders. The truth is that businesses of all sizes need succession planning, including and sometimes especially small businesses. Small businesses often depend heavily on a single person or a small group of people, meaning any sudden change in leadership can significantly impact operations. This dependency makes small enterprises particularly vulnerable in the absence of a well-thought-out succession plan.
At Duffy & Simon, we understand that the needs of small businesses differ from those of large corporations. We tailor our succession planning services to fit businesses of any size, providing affordable, adaptable solutions for small enterprises. Whether we’re working with a one-person operation, a family business, or a small partnership, Duffy & Simon’s team develops strategies that address the unique challenges each business faces, offering scalable options that meet the specific goals and limitations of small enterprises.
How to Write a Business Succession Plan
Creating a succession plan may seem daunting, but it’s much less intimidating when you break it down into manageable steps. While these steps may vary depending on the business and its needs, we generally recommend the following approach to succession planning.
Steps to writing a succession plan:
- Consult professionals — We recommend speaking to professionals from the very beginning to minimise stress and avoid missteps. The initial consultation is an opportunity to communicate your objectives, the business structure, and any family or partner dynamics.
- Assess business needs — It’s crucial that you take some time to identify the key roles, critical assets, and skills necessary to keep your business going. Doing so will help you determine what is required of future leaders.
- Develop a succession strategy — At this point, you’re ready to make some decisions. Define a roadmap for identifying, training, and transitioning successors.
- Plan for unexpected scenarios — Be sure to address contingencies for unexpected departures. You’ll have peace of mind knowing you’re prepared for any scenario.
- Implementation and review — Once the succession plan is in place, regularly review and update it to reflect changes in business goals or personnel.
Close Quarters: Why Is Succession Planning Very Important for Family Businesses?
Succession planning is important for family businesses because of the unique risks these businesses face, which can include familial disagreements as well as financial instability. The especially tricky thing about a family business—the thing that sets them apart from other small businesses—is the overlap between family relationships and business roles. With dynamics such as these, succession can stir up tension, particularly when differing opinions and emotions get involved. Done correctly, a professional succession plan can smooth leadership transitions, allowing the next generation to take over with confidence.
For family businesses, succession planning preserves not only the family’s legacy but also family harmony. Duffy & Simon emphasises the importance of succession planning for family businesses in achieving long-term success and stability.
How to Make a Family Business Succession Plan
Balancing family dynamics while ensuring the business’s needs are met requires a thoughtful and experienced approach. Duffy & Simon offers a family business succession strategy that maintains family harmony while establishing a clear path for the business’s future.
Strategies to make a family business succession plan:
- Define clear roles — Be clear and strict about roles, and ensure that each family member’s role is based on skill and expertise rather than family hierarchy or seniority.
- Encourage open communication — Foster transparent dialogue about and throughout the succession process. This helps build trust and set realistic expectations for everyone involved.
- Formalise your decisions — Establish a structured decision-making framework. This can go a long way in terms of preventing disputes and ensuring the business runs smoothly regardless of personal relationships.
Why Family Business Succession Plans Fail
Family business succession plans can sometimes fail due to a lack of open communication, misalignment between family members, or unrealistic expectations. Troubles can also arise when successors are not adequately prepared for their new roles, or when individuals underestimate the complexity of the transition process. For these reasons, it’s a good idea to recognise the importance of legal expertise in succession planning. Having a professional third party to guide conversations, mediate conflict, and offer an objective perspective can be key to successful succession.
At Duffy & Simon, we leverage our experience to help family-owned businesses avoid common pitfalls. By fostering honest discussions, providing training for successors, and addressing potential conflicts early, we create a well-rounded approach to succession that minimises the chance of failure. In cases where other businesses may have stumbled, we have successfully guided family-owned companies through the succession process, helping them preserve both their legacy and family unity.
Who Can Do My Business Succession Planning?
While some business owners may attempt to tackle succession planning on their own, the process requires a high level of expertise to address both legal and operational aspects. Having a professional on your side will help you avoid mistakes, anticipate challenges, and structure a plan that will accurately and effectively align with your business goals.
If you’re looking for professional succession planning services, choose Duffy & Simon. Our team brings a wealth of legal and business knowledge specifically tailored to the needs of smaller enterprises and family-owned businesses. We also take a sensitive and personable approach to our work, understanding the delicate dynamics that exist within family businesses. Reach out today and put your business’s future in good hands with Duffy & Simon.