The following excerpt is from the staff of Entrepreneur Media’s book Finance Your Business.
Note: This excerpt was guest-written by Brenton Hayden, founder of Renters Warehouse.
Succession planning can seem daunting, maybe even depressing for some. After all, planning for someone else to take over after you’ve left the company isn’t exactly the most exciting prospect.
But if you’re planning on retiring at some point, or even hoping to step back from having an active role in the day-to-day business of your company, then having someone ready and waiting to take over is crucial for your company’s continued success.
I was 21 when I made the decision to retire early -- perhaps a somewhat lofty ambition. After all, at that time, I had just founded my company, Renters Warehouse, and had less than a year of operating experience behind me. But it was a dream of mine, so I set out to make it happen.
One of the first things I realized was that a company shouldn’t be dependent on any one person for its survival. So I got to work building and scaling my company, all while ensuring that it was set up to run independently of me.
My goal was to exit by the time I was 27. To do that, I needed a plan, $7 million after tax and a successor to take over my role at the company.
In many ways, having an exit strategy in mind right from the start saved me from a significant amount of hassle. I was able to build my company brick by brick upon the idea of it being eventually run by someone else. My successor was able to easily fit into my shoes since the company wasn’t ever designed to be totally reliant on me.
It took work, but the transition proved to be completely worth it. I’m proud to say that since my retirement, Renters Warehouse continues to grow and thrive.
Succession planning often takes years to facilitate, so it’s important to start early. Here are a few things that helped prepare me for a successful exit.
1. Build a solid foundation
The key to a successful transition is to start building a solid foundation right from the start. Don’t make the mistake of designing your company to depend on you -- take this approach, and your company will be doomed from the moment you step out the door. Instead, try to work towards implementing clear systems that someone else will be able to seamlessly step into and follow. That way, when you exit, your company can function just fine in your absence.
2. Set target dates
Before you start looking at potential successors, it’s important to commit to a target date. This is only fair, after all -- it’s hard to keep a potential candidate indefinitely without a timeline. Setting clear goals and milestones and working backwards from there allows you to break things up into manageable steps and enables you to have a more effective (and actionable) plan.
3. Identify key roles
Identify crucial roles in the company that will need to be filled. It won’t just be “your position.” Depending on how you’ve scaled your company, you may need to think about the many different roles you have in the business. If you’re sourcing your successor internally like I did, you’ll need to fill their position as well.
4. Define the competencies required for these roles
Decide what skills are required to fill the roles you’ve identified. Once you’ve established this, you can start assessing people based upon these criteria. I firmly believe the best talent is often internal, but of course, this depends on the talent pool you have to draw from.
5. Plan for the future
When sourcing talent or looking for a successor, it’s a good idea to look to the future. Don’t just think about where your company is now, but ask yourself where it’s likely to be down the road. Which talent could help take your company further? Your ideal successor may be someone with an entirely different skill set to bring to the table.
6. Prepare your team
I believe it’s important to have employees and management who are just as invested in your long-term vision as you are. Having a solid supporting team can help make the transition much easier for everyone. In order for your successor to thrive, your team has to be onboard and fully support them.
7. Train and empower your successor
While you may be lamenting the fact that you don’t have a suitable candidate ready to step into your place, the fact is, there’s no such thing as a “ready-now” successor. Even the best candidate will require some training to prepare them to take over your job. They’ll get there in time.
The true litmus test is to give a potential successor some of your responsibilities. I sought to empower many of the key executives at my company. I gave them full access to the books and called on them for important management decisions. From the start, I saw to it that they were involved with everything from branding to hiring decisions.
8. Implement measurables
Finally, if you’re planning on retaining some measure of involvement after stepping back, it’s important to implement a system that will track how well your successor is managing the company. I use a scorecard system that uses major metrics to track the health of the company. These metrics include month-over-month growth, customer satisfaction ratings, average units under management per employee, new accounts and cancelled accounts.
Having numbers such as this holds people accountable, measures success and gives you peace of mind when you review the numbers on a weekly or monthly basis. As a retired CEO, this allows me to stay out of the day-to-day operations of the company but still gives me the chance to intervene if I see a problem.
Keep in mind that it’s less about the plan itself and more about the result. Every succession plan will be different and should be designed around the needs of your company. The best plans should flex and change along with your company’s requirements.
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This article originally appeared on Entrepreneur.com. Minor edits have been done by the Entrepreneur.com.ph editors.