When it comes to succession planning, company leadership often considers and plans for the impact of a change in management style and corporate vision. Many companies, however, fail to consider the financial impact of such a major transition, even if all other aspects of a change in leadership are a resounding success.
Your succession plan should include a budget.
Below is checklist to get you started in planning for the financial implications of a change in top leadership. This list is by no means all-inclusive, but it should get you in the right mindset for creating a budget for success(ion).
Checklist for Your Succession Planning Budget
The ramifications of not budgeting properly for a major transition in company leadership can impact your bottom line for years to come. As you create a timeline for succession and continuation, include the following budget items:
- Hiring Costs. Finding the right person to take over a top executive position may require the help of a recruiter. You may also need to pay for candidates to fly in for interviews and/or local visits.
- Dual Salaries. Ideally, there will be some overlap between the new leader starting and the outgoing executive leaving to allow for some mentorship and orientation. This time period can be especially valuable in establishing a sense of stability for existing employees. The drawback is the need to pay two executive salaries for an established transition period.
- Higher Salaries. It is quite common – especially in a family business – to pay a new leader more than the outgoing leader. A perfect example is when someone has built the company from the ground up stemming from a passion for the work and a desire to create a legacy. That leader may have grown accustomed to taking only a small draw after years of reinvesting in the business. A new leader will likely expect a salary more in alignment with industry standards.
- Coaching Costs. I highly recommend investing in a quality business coach to guide your new leader through this transition. Regardless of experience or past successes, someone taking over a top position will need a coaching partner to who can look at the situation from an outside perspective and offer a safe place to discuss ideas and potential changes.
- Stay Bonuses and Benefits. The instability of a change in leadership often causes turnover in key employees. Keep your best employees by anticipating this fear of the unknown. Identify people you can’t live without and touch base early in the process. Offer bonuses or additional benefits for riding out the storm and providing much-needed stability in these other key positions.
- Replacement Costs. Despite your best efforts, you will likely need to replace some employees who decide to leave or are let go due to incompatibility with a new corporate direction. Budget for these replacements even if you don’t think you’ll need it.
- Professional Partners and Advisors. There is value in including your trusted outside advisors in the succession planning process. Your attorney, tax accountant, business banker, financial planner, and others can offer expertise, experience, and perspective during a transition like this. Tap into their insight and leverage these relationships for success. We want to help you succeed.
Your Succession Planning Resource
If your business is approaching a time of transition, consider reaching out to your wealth management team for help in creating a succession plan that includes a thorough budget. In addition to these often-overlooked budget items, an experienced wealth management partner can:
- connect you with the right team of professionals to advise and assist you,
- prepare your outgoing leader or business owner for retirement by properly investing a settlement/package or the profits from the sale of their business, and
- provide guidance to incoming leaders or owners on understanding and protecting their new assets for future success and longevity.
According to Sir Winston Churchill, “He who fails to plan is planning to fail.” Instead, I encourage you to plan for success!
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