Begin Succession Planning Before You Need It

October 14, 2022 | Elections in Iowa Jack Carra, Senior Vice President, AssuredPartners,

How can your company continue to thrive without the right people in place in the future? 

You may have the talent to meet the needs of your company today, but the lack of a well-thought-out succession plan can present a business continuity risk and limit your company’s ability to create long-term sustainable growth.

Having no identifiable succession plan for critical roles can mean:

  • Permanent loss of critical knowledge
  • Naming a successor who lacks the commitment,knowledge, and skills needed to be successful
  • Significant loss of time and money finding and onboarding a new successor
  • Potential disruptions to workplace processes, workflows, and protocols

When should you start succession planning?

The short answer is now! Unexpected things happen, people retire, and turnover is inevitable. According to the U.S. Bureau of Labor Statistics, 5.9 million Americans quit their jobs in July 2022. And a study by Visier found that resignation rates are highest among mid-career employees – these individuals may be your future leaders, which means companies need to prepare now.

Companies that embrace succession planning begin well before they need to, designing and implementing a strategy as part of an organizational imperative, performed in conjunction with workforce planning and diversity and inclusion efforts. By building a deep bench of talent, your company will have a pool of qualified internal candidates that may be considered for advancement when a vacancy occurs.

The first step in succession planning is identifying critical and vulnerable positions. Succession planning must be closely aligned with the company’s overall business  strategy, so consider which roles need strong leadership to keep the company running smoothly.

Who are the rising stars within your organization? 

Meaningful succession planning calls for finding rising managers – individuals with curiosity, insight, engagement, and determination who can be groomed for leadership positions. Create a leadership development program for potential successors. In addition to mentoring and coaching, experiential learning fosters creative thinking and problem solving – allowing for the development of hard and soft skills useful in various situations. Cross-regional and crossfunctional training is also an effective way to help future leaders step into a new role.

The most valuable assets of any business are the key people who contribute most to its success. Your succession plan should also consider the financial burden from an unexpected loss of top talent. Key person coverage can:

  • Offset the cost of finding a replacement and loss of revenue during training.
  • Cover temporary staffing costs.
  • Demonstrate financial stability to creditors and clients.

Do you know what your business is worth?

An unexpected event could leave your successors in a tough situation if your buy-sell agreement kicks in and your stated company value is inaccurate. If the valuation in the buy-sell agreement does not reflect the company’s current financial results, the inconsistency can get in the way of a smooth transition of the business for all parties involved.

  • Costly delays and disagreements.
  • Fair market value may have to be negotiated with the IRS for gift and/or estate tax purposes.
  • Retiring or departing owners/heirs may not get a fair value for their share of the business.
  • Remaining owners may over-pay the departing owners/heirs.
  • Motivated sellers and sellers in liquidation are less likely to receive full fair value.

Successfully implementing a succession plan is not a one-time transaction. There will be unexpected twists and turns, so review your plan to adapt and evolve. Making this a continuous cycle will help your company stand the test of time.