What Does Succession Plan Mean?
A succession plan is developed by a company to detail how the owner will transition over a period of time out of the company's day-to-day operations. Succession planning differs slightly from exit planning. Succession planning is based on potentially transferring the owner's role internally to a family member already employed in the business or a member of the existing management team. An exit plan implies that there is an external alternative also being considered such as a sale to a third party (strategic or financial buyer) or an initial public offering (IPO).
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Divestopedia Explains Succession Plan
A succession plan rarely gets started early in private companies even though the plan should really start years before the succession actually occurs. Six ways to get the planning process started early include:
- Get the right assistance - engage the right advisory expertise;
- Develop standardized documents - take the time to develop templates and documents that can be used repeatedly;
- Develop an organizational chart and identify the potential successors - if there are no potential successors currently in the organization, start the search to hire one so the training process can commence early;
- Assign roles and responsibilities - once the organizational chart is developed, ensure that roles are clearly defined;
- Set (and adhere to) timelines - the planning process requires formal deadlines that are not simply kicked down the road if they are not met; and
- Keep planning relevant - keep the planning process at the top of the priority list.