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Top 5 Key Steps for Successful Succession Planning in Your Business

Picture this: An owner of a business is at home enjoying the Xmas festivities when all of a sudden he has a stroke and is incapacitated for an indefinite period, and in fact may never be in a position to work again. The business was solely dependent upon him for decisions and the signing off of just about everything that happened in the business. He was the sole director.

Difficult to pick things up from that position without major disruption to the business in the interim. It potentially threatens the very livelihood of the business, it would certainly unsettle employees and customers who would be questioning the business's future. An unfortunate event that could spell disaster for a company. So succession planning quickly becomes a topic to discuss.

The term succession planning refers to a business strategy that companies use to pass leadership roles and responsibilities down to another employee, or group of employees, or other stakeholders. By its very name it allows the company to continue to operate with a transfer of responsibilities that then allows the business to continue to run smoothly without interruption.

It can include a change of ownership but not all elements of a succession plan need to be wrapped around equity, some are simply empowering responsible employees within the business to take on more responsibility in a structured and transparent way.

In a lot of NZ businesses, the very lifeblood of the business stems from the owner. As the business grows so does the extent and range of roles and responsibilities that need covered. The more of these that can be delegated to others, the less risk that is held in the business around the owner. The test of this is always around holidays! How effective is the business when the owner is away on leave. Can they even afford to take time off to do that.

There are many events that give rise to needing an effective succession plan. They include the death or incapacity of an owner, retirement or maybe the introduction of 2nd and 3rd generation family members into the business. It could be that there is a need to reward long time employees for their loyalty and expertise. Whatever the trigger, its best to be prepared in advance than to knee jerk react as some event crops up.

So, what are some of the things to consider as part of the succession planning process?

  1. A delegated authority framework

  2. Power of attorney related to the business that allows the business to continue operating in the event of something happening to the owner.

  3. If there is a transfer of responsibility to others in the business, a clear plan that defines what is being transferred to who, and what needs to be done to ensure the recipient has the skills and capacity to take on those responsibilities, i.e. training or mentoring programs

  4. Lines of communication with key stakeholders to ensure they are across the changes that are being made, .e.g. banks, customers, suppliers, employees.

  5. It should be multi-layered. In other words, if some staff are stepping up to take on more responsibility that otherwise sat with the owner, who is stepping up into their roles to take responsibility off them. The effect of change is corporate-wide so plan that way too.

Succession planning is a form of contingency plan. It isn’t a one-time event and often involves gradual changes over time, so it should be reevaluated and updated each year or as changes dictate.

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