Four key steps to effective succession planning for your business

Succession planning is essential for a firm to avoid financial loss due to instability and ensure the success of any enterprise. While there is no hardbound rule for effective succession planning for making it successful one needs to customise it in accordance with the needs of the organization and the interests of all the key stakeholders. 

To successfully do succession planning, Himesh Thakur, Senior Associate, PSL Advocates & Solicitors says one should keep four points in mind: First, start with keeping the end in mind. Identify the core competencies, skills, abilities, and other required criteria for someone to be successful in a specific role. It is necessary to ensure that one is as inclusive as possible.

Also read: Will vs Trust: Which is the better option for your succession planning?

Second, be clear about the roles that will need to be filled in at the time of succession planning and also the roles which will not be required to be filled in. Third, engage everyone actively in the succession planning process to ensure their contribution and understand their outlook on the whole transition. Fourth, plan at least 5 years ahead with clear short-term goals as well for any uncertainties.

One of the most significant challenges a business can face is replacing leadership. Most critically, succession planning reduces this danger. Second, it aids in maintaining stakeholder confidence and trust while safeguarding creditors' and lenders' interests. “If there is no strategy, the company may fail in difficult times from lack of direction. The plan safeguards and maintains the goodwill and value of small enterprises and professional services, enabling the family to receive a recurring royalty or dividend. Therefore succession planning for a firm should start in advance rather than at the very end of the owner's career or life. Start by determining the course that the company should pursue and the individuals who can make this happen. Whether they are family members or not, have a conversation with them, and if they agree, train them so that they are prepared for a seamless transfer when the time comes. Execute the strategy through test runs to find any gaps and flaws so that the company can run well without you or other executives present,” says Aditya Chopra, Managing Partner, Victoriam Legalis, Advocates & Solicitors.

Also read: How can you effectively plan your succession, both in your business and in your family? Some useful tips

Last but not least succession planning is very personal and has a lot of emotional aspects attached to it. It differs from person to person. The key is to first understand the objective of the person who wants to undertake succession planning. A business person may want to undertake succession planning, cause he/she wants to continue the legacy of the business he/she has built, whereas a salaried person may want to undertake succession planning to secure the future of his/her children.

“A businessperson may also want to undertake succession planning, cause he/she believes that the business will be best carried forward by someone other than his/her own children. It is therefore very subjective and different for each individual. There is no one size fits all formula for succession planning. To achieve the desired results, one must first be clear about his/her own objective of succession planning, and the individuals who he/she believes should be entitled to succeed him/her. Once this is clear, professional advisors can then assist in creating the right legal, tax, and regulatory mechanism for giving effect to the objective,” says Hemang Parekh of DSK Legal.