Succession Planning for

Small- to Medium-Sized
Businesses
How to create a back-up for your business

By James Price, BBM, FAIM

Table  of  Contents  
Introduction  ...........................................................................................................  3  
What  is  succession  planning?  .........................................................................................................................  3  
Succession  –  it’s  not  a  disease  for  older  people  ......................................................................................  4  
How  to  measure  the  success  of  your  business  back-­‐up  .......................................................................  4  
Who  makes  up  your  ‘people  resource’?  ......................................................................................................  5  
1.  The  three  elements  of  your  people  resource:  You  ..........................................................................  6  
Is  succession  planning  relevant  for  me?  ....................................................................................................  6  
What  if  I  choose  not  to  create  a  business  back-­‐up?  ..............................................................................  7  
Help!  I  need  back-­‐up  ..........................................................................................................................................  8  
What  level  of  business  back-­‐up  for  me?  .....................................................................................................  8  
2.  The  three  elements  of  your  people  resource:    Your  team  .........................................................  10  
How  to  achieve  best  practice  in  people  back-­‐up  ................................................................................  10  
How  to  create  a  Professional  Development  Plan  for  your  team  ..................................................  11  
How  to  talk  to  your  team  about  professional  development  ..........................................................  12  
4  Top  Tips  for  building  a  reliable  and  dependable  team  ................................................................  14  
3.  The  three  elements  of  your  people  resource:    Key  external  influencers  ............................  15  
4  Top  Tips  for  ensuring  a  successful  outsourcing  relationship  ....................................................  16  
External  influencers  the  way  of  the  future  ............................................................................................  17  

Disclaimer: The information contained in this eBook is general in nature

and should not be taken as personal, professional advice.

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Introduction
By James Price, BBM, FAIM

What is succession planning?

There is a lot said about succession planning for large and small businesses
alike. However, for many business owners, it remains a somewhat nebulous
concept that often challenges the basic tenet of business ownership i.e.
business control and destiny!

In my view, put simply, succession planning is really about creating a

dependable and reliable business back-up.

Succession planning relates to the people in your business, but to emphasise

what succession is all about, let’s use a systems analogy:

Imagine your business

installs a series of large
servers to run its
operating system. It also
has a web interface for its
customers to log orders
and interact with the
business.

You and your supplier for

these IT and business
systems would normally
sign a service level
agreement providing
some standards
regarding how those
servers and systems are maintained and some agreement on
service levels to deal with outages or downtime.

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That’s a systems example of how you protect against the risk of failure or
removal of the functional system that is assisting your business to operate.

You have a back-up – a dependable and reliable business back-up.

Business succession is about the people in your business in the same context.

It’s about creating a back-up system relating to your people resource to

protect your business against the removal of key individuals that impact and
operate the business, including yourself.

Succession – it’s not a disease for older people

Succession starts the minute you start up a business, whether you buy it
or start it from scratch.

If you’re thinking about succession it’s critical to put yourself in the shoes of a
potential purchaser at any time during your business’s life, even if you’re not
thinking about selling, and ask:

• If someone paid me to hand this business over to them, what would it

be like for them?
• How easy would it be to take over this business and run it?
• Are the recipes and ingredients clear and available, or are they a
secret?

How to measure the success of your business back-up

Surplus sustainable cash earnings is a
measure of the robustness of a business’s
succession plans.

In our eBook on How to Assess Business

Value, we introduced the analogy of the
diesel engine. Sustainable cash earnings is
the extent to which the diesel engine keeps
running and is not dependent on one
individual or group of individuals to make it
generate what it generates.

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If a purchaser were to consider a business highly dependent on you, then
their interest in the business, offer price and conditions, will be based on the
time and risk involved in rebuilding your business so it’s no longer dependent
on you.

Business value, whether you’re marketing it for sale or building the inherent
value of the business for future generations or just to extract value along the
way, is inextricably linked to how you manage the issue of what I call
business back-up, or succession.

Who makes up your ‘people resource’?

If succession planning is about creating a business back-up relating to your
people resource, then who and what comprises your people resource:

• You – the business owner

• Your team – the key individuals that manage and operate your
business
• Key external influencers – people who interact with your business
and can have a significant impact on your ability to achieve your aims
and objectives; people you rely on to deliver a component of the
product or service that you offer the market; or people who support or
advise you on financial, legal, statutory and systems matters (e.g. key
suppliers and key partners in your distribution network, your financier,
etc.)

A business’s people resource is what I like to call the immediate business

family:

• The people who have the most impact on your success;

• The people you know and trust to assist you grow, manage and
change your business;
• The people with an intimate and engaging knowledge and involvement
in your entire business, or in a specific part or component due to their
expertise;
• The people you depend and rely on – if one of these people became ill
or (suddenly) left the business for another reason, it would be like you
losing a finger or toe or, worse, losing an arm or a leg!

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1. The three elements of your people resource: You
There are three elements of business back-up, or succession, that you need
to consider.

The first is you, the business owner, and your ambitions and motivations in
running and owning the business you control.

Is succession planning relevant for me?

When you think about business back-up and succession as it relates to
yourself, you first need to ask: is it relevant for me?

There are some businesses that are reliant on the owner almost exclusively
and the owner decides that’s how they want it.

They are taking the risk, so they prefer to drive, manage and control the
business themselves.

There is nothing wrong with that; business succession is not something

that needs to be forced on everyone.

However, as the owner, you must accept that by making that decision you
are potentially limiting the value of the business, because it is highly
dependent on you as an individual, today and in the future. But, of course,
these are the trade-offs a business owner has to consider and deal with
regularly.

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What if I choose not to create a business back-up?
Choosing to drive, manage and control your business yourself is a very valid
strategy, but there are consequences you need to think about in that situation:

1) Need to extract value now – You need to ensure the business

generates significant value day to day, year to year, because it is highly
dependent on you and therefore is not necessarily a business that can
be easily transferred to another party. As a result of its dependence on
you, it probably won’t have large sustainable earnings and therefore
will be seen as having limited value by potential purchasers, as you will
have all the knowledge and relationships relating to customers,
suppliers, processes and systems.
2) High return on investment required – If you’re not getting your value
along the way in terms of return on investment over and above
reasonable market wages for your involvement in the role, then the
business is not generating what it should. If you are taking most, if not
all, the risk, then you need to think of what reward for risk the business
is generating.
3) Accept the personal stresses – If you choose not to have a back-up
system for your business it can create certain personal stresses and
strains if you become ill or need to leave the business for a certain time.
The workload may also impact your health, as all the pressure is on
your shoulders.
4) Increased perceived risk – People around you, such as financiers
and customers, will rate the business differently if it’s solely dependent
on you because they know that one person can only have influence on
so many things.
5) Staff may lack motivation – The people working for you will need to
be somewhat subservient or have more moderate motivation to grow
their individual skills and capabilities in your business.
6) Poor staff retention – You may find retention of staff is difficult as they
can become frustrated by a lack of opportunities for individual growth.
You’ll then have to spend time going to the market to supplement your
team, and your business will be impacted by having to train new staff
on your systems and processes.

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Help! I need back-up
So, you’ve decided you want to share the load, but you’re still not entirely
comfortable with the concept.

You’re thinking: “I’m taking the risk, I like things done a certain way and I
know better than anyone else how that needs to be done – and I have the
results to prove it!”

Don’t worry, we often deal with people in that situation, and the key issue is to
work on building a team around you that addresses your weaknesses.

You can still have ultimate control, but a good team will cover your gaps.

Start by having a conversation with yourself – or go out and get some advice
– and analyse your strengths and weaknesses as a business owner.

You need to admit to the things you’re really good at, but be equally clear on
your gaps and weaknesses.

What level of business back-up for me?

There are different levels of succession, or business back-up, that you might
like to build as a business owner, depending on the extent to which you
want to release control for the ultimate accountabilities and decisions of
running and managing your business.

It’s a continuum from simply filling a gap, but filling it with a reliable,
dependable resource, through to partnering with an employee with expertise
that you haven’t got.

Where you end up on the continuum will, to a degree, depend on your comfort
with sharing your influence and passion for the business:

• You can fill positions but still make all the decisions;
• You can delegate some of the decisions to some of the positions; or,
• You can delegate all the day-to-day decisions and instead just make
the strategic decisions and provide the guidelines and framework for
your team.

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Should you head down this path, then your attitude and approach to
managing situations where your people make mistakes or do things differently
to you, may need to change.

You might find yourself becoming more of an adviser, wise owl and mentor to
key members of your team, in assisting them to tackle their personal
challenges as they impact the business.

We’re all individuals with egos and the need to be satisfied in our working life.

Some are satisfied by doing, driving, deciding.

Others are satisfied by guiding, nurturing, reflecting.

There’s no right or wrong way to go, but there are consequences for your
business.

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2. The three elements of your people resource:
Your team
This section deals with the key people in your business who either:

• have the capacity to make business-shaping decisions, from both a

strategic and day-to-day operational perspective, or
• are critical links in the operations of the business.

These key people drive the outcomes in the business and are accountable for
those outcomes. And just like your IT system back-up, this ‘people resource’
needs to be reliable and dependable.

How to achieve best practice in people back-up

Absolutely core to good succession planning and building a good team
around you is that each team member knows:

• what’s expected of me;

• where we’re headed, and
• what success looks like when we get there.

If your goal is to be a business owner working on the business, rather than in

the business, and to have a team of people working in concert for you, then
one way to approach this goal is to consider the analogy of an orchestra
conductor.

Before a good orchestra conductor even lifts his baton, he first shares the
piece of music that is to be played.

After the piece of music is passed out, the conductor will talk to the various
sections about his expectations of them.

After these individual discussions all the musicians will come together as a
group to discuss the piece of music and the coming performance.

As the orchestra plays, the conductor will have the piece of music in front of
him and will check the flow and the nuances.

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Most importantly, he will look ahead, assessing the risks and ensuring he
brings in the relevant sections at the right time. He’ll also pay attention to how
the audience is receiving the performance.

This analogy of business owner as conductor is based on:

• having a written plan of

your strategic and
business objectives;
• sharing that plan in
both the development
and finalisation stages;
• getting rid of any
ambiguity about
direction and focus,
roles and
responsibilities;
• ensuring everyone
knows what the
expected outcome is,
i.e. what success looks
like, and
• executing the plan with monitoring, review and forward-looking
perception of the potential risks and opportunities.

How to create a Professional Development Plan for your team

As well as a Business Plan, business owners should have a Professional
Development Plan as part of their Succession Planning strategy.

This plan only needs to be three or four pages in total, but it must focus on the
key management and leadership positions within a business.

It needs to:

• look at each of the roles in the business;

• detail what’s required of each of those roles, and
• examine the level of proficiency of each of the incumbents.

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The plan must then speak to two things:

1) What are the gaps in each person’s proficiency that we need to cover
and address? How can we develop that person’s proficiency?

2) Where do I see these key people migrating within the business or

otherwise? Will they be in the same role for 3, 5, 10 or 20 years? Are
they happy with that? Do they want to get other experience in a
different functional area of the business? Are they an understudy to
me?

These are questions a business owner needs to ask of themselves and their
business advisor but, more importantly, they need to specifically ask the
individual team members.

How to talk to your team about professional development

Sometimes business owners feel that professional development and
succession planning is almost a taboo topic, because discussing it will
create expectations among staff: “I’m going to go up in the world; I’ll need
more salary!”

The truth is far from it.

Personal, professional
development discussions are
about a team member’s
strengths, weaknesses and
capability, how they’re
fulfilling their current role
versus what opportunities
might lie ahead for them in
the future.

These are not performance

discussions – we’ll deal
with performance
management in a separate
eBook.

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Here’s an example of a personal, professional discussion:

So Mr Operations Manager, you’ve been with us five years, you’ve

got a family now, you’re hitting your targets in the business, you’ve
got 40 people under you – where do you see yourself going
forward?

What do you see as your weaknesses in your current role?

If your GM wasn’t in place, how hard would it be for you to step up

into that role? What would keep you awake at night in that move?

Is that where you want to go, or do you want to get experience in

another area?

Those are the sort of questions that need to be asked and, ideally, a business
owner should ask them directly.

If you don’t feel confident asking the questions yourself, then do it in

conjunction with an advisor or someone in the business who has the
capability.

These discussions are important for directing and developing your team, both
as experts in their own particular area and also as your engine room for
driving sustainable earnings.

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4 Top Tips for building a reliable and dependable team

1) Shared vision – Your key team members need to have and to feel a
shared vision for where your business is headed.

2) Clarity – Each team member needs to be absolutely clear on their

roles, responsibilities and accountabilities.

3) Written plans – Your Business Plan needs to be clear and shared.

You also need a Professional Development Plan for your key team
members, and a Succession Plan.

4) Talk to your team about their Professional Development goals

and succession – I recommend having these discussions at least
once a year. They should be scheduled properly, with some
preparation, and they must be kept separate from performance reviews.

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3. The three elements of your people resource:
Key external influencers
Succession planning is also relevant to the key external people who impact
your business.

This area is a little more

nebulous and will depend on
the maturity, stage, point in the
cycle, size and shape of your
business.

Examples of businesses with

such external influencers
include:

• A business that is not

large enough to require
its own in-house,
experienced accounting
skills in the finance and
administration
department;

• A business that doesn’t

have its own Chief
Financial Officer (CFO)
or General Manager (GM);

• A business with a number of staff, but not enough to require a

dedicated Human Resources manager;

• A business which outsources payroll and other key roles and people
services;

• A business which uses contractors for business systems and IT

services and management.

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Where this is the case it’s very important that the services provided by outside
people are provided in partnership.

The goal is that if one of those outsourcing companies or businesses changed

hands, had a business failure, or lost a key staff member, your business
would be protected from adverse impact.

This is another form of business back-up, or business succession. It’s making

sure you are protected against risks and failures of your external business
partners.

4 Top Tips for ensuring a successful outsourcing relationship

1) You can’t protect against everything, but in making the decision to

outsource services you need to have a formal agreement with each of
those outsourcing parties that addresses potential risks and issues
around:
• downtime
• business failure
• security and confidentiality of information

2) Be open and communicate regularly with those parties on your

expectations around service delivery and transfer of knowledge.

3) Make sure there are documented procedures relating to the

interaction with an outsource party so that in the event of staff changes
in either organisation – your business or the outsourcer – the linkages
for service delivery aren’t broken.

4) Make sure you have a buddy system within your business, which
involves appointing one of your internal staff to be the buddy for each
of those external service providers. Ensure your staff member
communicates with their ‘buddy’ regularly, and make sure they have a
relationship with more than one person in the external party, so your
business is not solely reliant on a single individual.

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External influencers the way of the future
A lot of people wouldn’t include ‘Key External Influencers’ in a discussion on
business succession, but often businesses today are reliant on a wide range
of people who aren’t necessarily directly employed in the business – this goes
for businesses large and small.

With the growth of web-oriented services, in particular, outsourcing

partnerships are often a critical part of your business.

Be prepared – protect your business – have a back-up – because

building business value matters!

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