Who is Running Tomorrow?
We all long to be remembered fondly. Recently, Arnold Palmer died and there was no shortage of wonderful memories shared by his colleagues and the people he mentored. He paved the way for those behind him to have a path to success on the golf course. He taught young golfers how to be respectful and moulded them into future champions on the tour. Arnie was doing succession planning for the PGA.
While the finality of death is not always the case in the workplace, businesses do deal with staff leaving because of illness, termination, and retirement (the baby boom exodus is coming). Looking at ownership, 75% of small business owners will be retiring over the next decade. Succession planning deals with who will take over those businesses.
Succession planning is often overlooked by business for a number of reasons. Organizations are busy with day-to-day challenges; some examples could be being understaffed, keeping the bills paid, collecting from customers, and marketing. There is also the issue of managers feeling threatened by subordinates and the unwillingness to train a successor. With everything else, succession planning just falls off the radar.
Succession planning is important to an organization for a number of reasons. One reason is that there are huge tax implications. If an individual sells a business to an unrelated person, it is considered a capital gain and subject to a significant exemption. However, if the business is sold to a family member, CRA views the cash as remaining within the family unit and taxes it at the top marginal rate. Yet, with some long-term planning, by setting up a family trust, an estate freeze, or implementing other strategies years in advance, this tax bill can be minimized.
Another reason that succession planning is important is that it takes significant time to finance the succession. It can take years to find a buyer with enough capital to buy out a retiring owner. A lack of planning can lead business owners to sell at a discount because potential buyers have not had time to raise the funds.
A third factor to consider is that millennials are projected to make up more than half the workforce by 2020. While succession plans are often seen as exit strategies for business owners, they are also essential to a business’s retention strategy. By showing employees clear opportunities for growth and potential for ownership, businesses will increase staff loyalty and engagement, therefore increasing profitability and the value of the business. With some insight and careful planning, this can be managed. A few things businesses can do to foster and develop employees from within and increase retention are:
- Assess their current and future needs based on either their strategic plan, goals and objectives, or priority programs and projects
- Match these to the capabilities of the existing workforce
- Develop a plan to manage the gaps that will arise when individuals in key positions leave or are promoted
Planning and preparing now to pass off your hard work to a new generation of leadership will ensure your legacy is passed on. Will your legacy be that of Mr. Palmer’s? We can all dream.