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There is an old and oft-repeated saying about succession planning, which has gained renewed importance over the past two years — “If you fail to plan, you plan to fail.”

The COVID-19 pandemic was a stark reminder of the uncertainty of life and the need to plan for contingencies. In the world of entrepreneurship, the act of succession planning assumes even more significance because tethered to businesses are the lives of real people and their families — one of the main reasons why entrepreneurs globally are beginning to realise the importance of succession planning at an early stage. 

What and why of succession planning?

There are many definitions of succession planning. But, in essence, the process helps business leaders answer crucial questions such as what happens to your business after your exit? Is there a plan in place if you are incapacitated due to ill health?

A succession plan entails having a blueprint in the event of a change of guard, which in most cases, is inevitable as entrepreneurs age and eventually have to pass on the mantle to someone else.

Moreover, succession planning assumes even more importance in today’s business environment because of the fundamental change in the way entrepreneurship functions. World over, the vibrant startup ecosystem has given rise to thousands of nascent but fast-growing business ventures. In fact, India has the distinction of harbouring the world’s third-largest startup ecosystem. All of this has translated to a new breed of first-generation entrepreneurs who are extremely young.

For businesses like these, succession planning becomes crucial because a traditional takeover by the next generation is not on the horizon for the next 25-30 years at least. Hence, there has to be a water-tight plan in place — who will succeed a young entrepreneur once they step down (for whatever reason) and carry forward the vision of the business. 

A lot of new-age entrepreneurial ventures are funded by a consortium of investors and companies. Hence, whether it is a publicly listed or privately held company, maintaining the trust of the multiple stakeholders who have helped to prop up a business is vital. And succession planning plays an important role in accomplishing this.

It helps to communicate to invested parties that the business has efficient planning for the future, and the departure of key decision-makers, whether expected or unplanned, will not leave a power vacuum or cause upheaval in the company. 

Further, new-age entrepreneurs are known for their multiplicity of business ideas — there is always the possibility of setting up a business and eventually handing it over to someone to pursue another passion.

For entrepreneurs who plan to sell their business, succession planning is a good strategy to ensure that the best possible sale value is secured.

Today, business leaders know that a succession plan helps to ensure a smooth transition when it comes to a leadership change, and this is the best way to keep a company’s original mission and vision intact. 

Furthermore, one of the biggest advantages of succession planning at an early stage gives time to prepare those who are in line to take over.

Succession planning is best done over some time, wherein a successor has a long apprenticeship and a ringside view to the inner workings of the business they are groomed to take over.

This process can take anywhere from many months to a few years, and, hence, planning at an early stage helps entrepreneurs to secure the future of their businesses. 

Any business leader — whether at the helm of a family business or a startup venture — is aware that they have to step down or retire due to age-related or other unexpected health emergencies, etc.

In such times, their businesses will have to be run by efficiently trained and prepared successors who will be tasked with maintaining business continuity and restoring faith in stakeholders during a turbulent period of transition. This is a daunting task, and only a well-defined succession plan can ensure this seamless transition. 

Thinking about or planning for change can be an unnerving and unpleasant process. Many business owners get too caught up in managing day-to-day operations and often put off succession planning for as long as possible.

However, the sooner business leaders and entrepreneurs begin working on succession planning, the better guarded their businesses will be for a world increasingly uncertain and volatile. 

Family offices can help successful entrepreneurs in getting the process of succession planning started by helping them to free up their time and take care of the usual pain points such as managing personal accounts, real estate assets, and private investments.

Family office professionals can also help to bring in tax-efficient structures, ensure compliance, and assist other family members in whatever way is required. A family office’s operations and compliance team can help entrepreneurs to redirect their time and energy from managing everyday financial matters to focusing on creating a future-ready succession plan for their businesses. 

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YS.)