According to Project Equity, small businesses are the lifeblood of our economy, making up over 99% of all firms and providing more than half of private sector jobs. Locally owned businesses circulate three times more money back into the local economy than absentee-owned firms or corporate chains. One in three business owners have a hard time finding a buyer (Silver Tsunami | Small business closure crisis). To me, there is nothing more tragic than a business that closes when the owner retires, especially when that business provides a valuable product or service that people rely on. Not to mention the fact that employees are now displaced and have to look for other work. This is often the result of not planning well or early enough, and the negative economic impact is significant.

Tragically, small business owners are often so busy working in their business that they don’t work “on” their business and plan for continuity as they begin to consider retirement. Good succession/business continuity planning includes 4 components:

1.  Strategic thinking and planning to outline goals and objectives for the future

2.  Strategic leader development

3.  Emergency succession

4.  Departure-defined succession planning

In order to plan for long-term business continuity, you must challenge your assumptions about how you plan and structure your organization. While it may seem daunting, the following steps make the process much less overwhelming.

1.  Outline your strategic goals, objectives and organizational development needs over the next few years. If your company does not have a strategic plan that includes these priorities, start a process to outline them, even if it is informal.

2.  Determine the “scope” of the succession/leadership development process. Determine how “far down” the process will go, and exactly which positions will be included. Ideally, any key position where the individual is the “only one who can do something” should have a backup plan. I recommend including the CEO, senior management staff, key technical staff and any key staff members that have specific technical skills that need to be replaced if they left. Organizations that are large enough are encouraged to include all management and supervisory staff, if possible, to support retention and a career ladder for junior staff.

3.  Identify the emergency succession needs for each position and provide cross-training. Clarify the responsibilities associated with each position and identify who would take over each responsibility in the event of an emergency, as well as what they need to know to effectively perform the duties. Create an action plan with due dates to cross train each individual for each duty.

4.  Analyze each position to determine the knowledge, skills and abilities (KSA) required and prioritize them, in the event that an emergency replacement becomes permanent. This KSA list becomes the foundation for the replacement recruitment effort, as well as the leadership development process. This is especially important for the CEO/ owner position, because when an owner retires, their job functions may need to be divided among multiple future roles.

5.  Identify potential candidates for each position and use the KSA list as an assessment tool. Look for candidates who have the potential to “grow” into each position, especially the CEO position. Compare each candidate’s current knowledge, skills and abilities with what is required for a particular job. Create an action plan that outlines the training, experience or coaching required for each candidate to grow into the job.

6.  Keep track of the employee development action plans to ensure that both emergency and leadership development succession efforts are implemented. The Human Resources or Training staff (if present) should facilitate this process and keep track of the achievements. There are numerous learning management systems on the market today to help keep track of the training and employee development plans. A simple spreadsheet will also work for small organizations or those with limited resources. Be diligent in following up to make sure that learning and knowledge transfer happens.

7.  Talk to your key employees about their interest in ownership. One or a few key employees may be interested in taking over the company if given the chance. The only way to know is to have candid conversations with them about their intention and what it would take for them to be equipped to own and manage the business going forward.

8.  Talk to your accountant and attorney about how to structure a sale. I often tell people that “80% of something is better than 100% of nothing if the alternative is going out of business.”  Many owners fail to sell their business because they put too high a price tag on it. A retiring business owner may be able to finance an employee buyout, that provides some ongoing retirement income and the opportunity to help a new entrepreneur. There may also be tax advantages for the business owner, rather than getting one lump sum payment when the company is sold. There are also ways to transfer ownership over time. Be open to exploring creative structures.

9.  If internal buyout is not an option, start shopping early. Someone may have interest and willingness to buy your business, but not access. In other words, if you start early enough, you may be able to recruit a key employee that would be willing to work for you for a few years prior to your retirement, knowing that they are being groomed to purchase the business. You can also negotiate a “sweat equity” arrangement. With the right marketing and networking support, you can identify potential purchasers if given enough time for this important process.

10.  Plan for some “onboarding” time with the new owner, especially if they are external. In the last 6-12 months prior to retirement, the owner should ensure that others are involved in external stakeholder relationship building and knowledge transfer to ensure continuity. When setting the owner retirement date, include some time (up to 3 to 6 months) to provide transition support for the owner.

11.  Call us if you need help. This is an investment of time resources worth making. We can help facilitate the succession planning process and help with the marketing and networking to help you find a suitable purchaser.

Following these steps will ensure an effective ownership transition and ensure sustainability for the company.

Debra Thompson is founder and president of Strategy Solutions, Inc., a business development firm that provides strategic planning, organizational development and support services to organizations and communities who want to grow and thrive. She can be reached at debbie@getstrategy.com, 814-480-8000 or through her website at getstrategy.com.