Succession planning in business: why is it important?

Small and large companies in different market sectors are constantly facing financial, administrative, real estate, etc. changes. Therefore, it is important to create strategies to respond to these possible transformations. This will ensure the peace of mind of employees, investors and customers, as well as the solidity of the company's long-term business foundation. 

In that sense, one of the issues that any experienced entrepreneur or businessman must take into account is succession planning in business. If you still don't know what it is and why it is so important for the growth of a company, Zen Valuations tells you about it in this article.

Simply put, the concept of succession planning in business is used to define a business strategy that will be used in the event that leadership positions need to be transferred to a new professional. 

In other words, it is a process that is undergone when the identity of the owner of a company is to be changed. Having all the necessary knowledge to act in this type of circumstances promotes the safeguarding of assets and the maintenance of responsible practices internally.

Why is there a business succession?

There are many reasons why a company may be forced to change directors, presidents, managers or vice presidents. Usually, the main cause for this is the retirement of the personnel in charge. 

However, it can also happen as a result of votes by the boards of directors at annual meetings, the incorporation of better trained and more updated personnel in certain areas, the resignation of any of the parties, a general restructuring of the company, the purchase or sale of the business, etc. 

Whatever the case may be, it is always best to keep in mind the steps to build a successful business succession planning. In addition, it is necessary to know everything that this process involves in terms of documentation, rights, duties, contracts, payments, among other things. 

That is why it is essential to receive a specialized consultancy, in order to avoid inconveniences and to be sure that everything is being governed under the legal regulations.

Succession planning in business: what does it involve?

Succession planning in business is a method of prevention. This means that it is not a plan that should be built only in times of emergency, but should be structured in advance of any contingency. In addition, it should be reviewed, evaluated and renewed annually. 

When business succession takes place, the new team in charge of leading the business not only acquires benefits in terms of decision making and the direction of the company's projection. 

It must also take on a series of duties, since it will be transferred control over the goods and services but also over the human resources that make up the business. These obligations must be clearly stipulated in contracts designed by specialized lawyers and include, mainly:

• Liability for past debts that have not been settled

• Subrogation to previously established contracts with workers

In that sense, there are indispensable factors to take into account for effective succession planning in business. Learn more about them below:

Personnel training for the succession planning in business

A company, regardless of whether it is family-owned or not, must be constantly on the lookout for the highest quality human talent. This can be done internally and externally. 

That is to say, if possible and if necessary, new vacancies can be opened and be willing to incorporate new employees with a view to obtaining the highest positions within the corporate hierarchy. It must be personnel with sufficient experience and who demonstrate that they can contribute to the growth of the business.

On the other hand, it is also important to evaluate the capabilities and performance of the company's current employees to be aware of who could become potential leaders. 

This is also a benefit for employees and a means of motivation, as it will give them the opportunity to move up the career ladder. Having a training program for your employees to strengthen their leadership skills is a great alternative and will help you to further structure your succession planning in business.

Accountability

On the other hand, it is also the responsibility of the presidents and managers of each department to keep all inventories up to date. Having the company's assets determined in official reports will save you a lot of effort. 

It will also facilitate the succession planning process since all parties will be able to have immediate access to financial information and updated budget status. A good inventory should include:

• Inventory budget based on cost of goods

• Sales rate targets by period

• Monthly distribution

• Analysis of sales ratios and gross margins

• Performance monitoring and measurement

If you require personalized advice for any financial process that you are going to carry out in your company, do not hesitate to contact Zen Valuations through our contact form or info@znvaluation.ca or +1-514-312-0454.

Remember that we offer you the facility of scheduling virtual consulting sessions in any region.