The 6 Best Practices for Creating a Successful Succession Plan

August 17, 2023 Oak Street Funding

Succession Planning Best Practices

A succession plan is more than a document spelling out who will take over the company you’ve built or grown. It preserves the culture of your company by formalizing its values, which are also your values. It also establishes a legacy for you and a model your team will follow.

So what does it take to create a succession plan of your own? These six tips will provide a quick overview of the process.

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1. Start your succession plan process yesterday

Many owners wait too long to begin succession planning - and the result can be devastating. The sooner you start the succession process, the more options you can choose from. Ideally, you should begin the planning process by thinking in terms of years, rather than months or weeks. A longer planning timeline allows more careful consideration of all the options and can help prospective owners line up the financing they’ll need to execute the transition. Longer, carefully planned changes will allow you to make adjustments that can impact the value of the business, while also reducing anxiety among clients and staff.



2. Take time to identify everyone’s goals

The most successful succession plans address the goals of every stakeholder. As the owner, your primary goal is most likely receiving the greatest value for the company you’ve worked so hard to build. However, paying attention how your succession will impact others will help you craft a better plan. For example, look at your company through a prospective owner’s eyes. What steps can you take to make the company more appealing to them?

If your plan calls for internal succession, make sure your successor is serious about becoming an owner. Talk with them to get a sense of their objectives and plans for business growth. You don’t want to be in a situation where you’ve planned to sell the company to an employee only to discover they don’t want to or are unable to buy it.

It’s also essential to think about your clients’ needs because any transition will impact them personally. Much of your company’s value rests in future revenues from current clients, so you should also consider what you’ll need to do to reassure and retain those clients through the process. If clients are uneasy about changes, they won’t hesitate to move their business to one of your many competitors.

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3. Mind the gap … in your business plan, that is

If you’ve written a succession plan, but haven’t taken the time to review it recently, now is the time. Perhaps your team has grown so much since writing the plan that you’ve added another tier of management. Or you wrote the plan intending Vice President Schooler to take over, but you didn’t know he was going to have that heart attack.

In other words, it’s time to look over everything in the plan through the lens of today’s company. Keep your plan up to date by scheduling regular review of the plan.

→ Client Success Case Study: Internal Succession


4. Do you really know what it’s worth? I mean, really?

You may think you know what your company is worth, or you might assume some standard multiplier like “X times revenue” will provide an accurate value. But again, you’re not objective. When we speak of business valuation, we’re talking about how someone outside your company -- whether that’s a lender or a prospective buyer -- would measure its value. Just as homeowners tend to overestimate their homes’ values, business owners often believe their “babies” have greater worth than the marketplace would assign them.

To make sure you arrive upon an accurate value, research the valuation techniques that are most common in your industry or turn to an outside expert with experience in developing valuations. An accurate value is essential to ensure you receive what you should, especially if you’re expecting the proceeds to fund your retirement.

→ Read Now: Importance of A Practice Valuation


5. Don’t keep it a secret from everyone else

In fact, you really should share it with everybody. People like to know what’s going on, especially when it could have a direct effect on their livelihoods. If the future is uncertain, it can create confusion and tension among employees.

How do you prevent that? It’s pretty easy. Just let them know what to expect. Clarify how key decisions will be made and who will have the authority at each step of the succession. Communicate clearly and candidly to the staff and maintain open communication across all parties as the transition is taking place. There is no such thing as over-communication when planning a succession.

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6. Know whether you’re going to reach those goals

Once many people go through the sometimes-painful and often-emotional process of creating a succession plan, the last thing they want to do is think about it. Yet for most succession plans to accomplish their goals, they call for specific steps involving other people, and for those steps to happen within a specific timeframe. If they don’t happen, the plan will fail.

That’s why your succession plan must include a way to monitor your progress. To do that, you have to be able to define what progress looks like and how you measure it. You need clear criteria that won’t change. One common technique involves identifying key components of the plan and choosing practical methods for measurement.

Knowing you are reaching the goals necessary for your future succession will give you and your employees greater peace of mind about the transition.

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Disclaimer: Please note, Oak Street Funding does not provide legal or tax advice. This blog is for informational purposes only. It is not a statement of fact or recommendation, does not constitute an offer for a loan, professional or legal or tax advice or legal opinion and should not be used as a substitute for obtaining valuation services or professional, legal or tax advice.

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