That is important, but what many small-business owners fail to grasp is the importance of succession planning at all levels of the organization. The untimely loss of a key individual in a small organization can have devastating consequences.
A common mistake is the failure to properly identify key individuals. When asked who the key individuals are, many owners go right to the managers who report to them. Key positions include some of those managers, but they also include people at lower levels of the organization, whose loss would have an immediate negative effect on customers or on the timeliness and integrity of financial reporting.
The controller, who is the only one who knows how to close the books every month, is a key individual, but there may be many more at lower levels. The co-worker who is the only one who understands a critical product and has that know-how in his or her head is a key individual. So are the customer service rep who is the only one who knows how to correctly enter customer orders into the computer system and the salesperson who is the only one with any relationships at the company's most critical accounts.
The first step in mitigating the risk of losing key people is to identify them at all levels of the organization. The easiest way to do that is to think of each individual and what would happen if that person suddenly was gone — forever. If someone else can close the books, enter the orders, design or build the product, or call the key customers and seamlessly retain the relationships, then it's no problem. If not, a succession plan is in order.
It is important not to kid yourself. Everyone has somebody who backs them up during vacations or sick days. But that is often a matter of a manager or co-worker stumbling through the job for a week or so, where not doing too much damage is considered success. Relying on that kind of backup long-term could be a disaster in the making. At the beginning, it is better to broadly define key people than to be too narrow.
For each key person, the question is, what would you do if that person was suddenly gone? That generally would mean moving another employee into the job temporarily, until a replacement could be hired and trained or moving another employee into the job permanently. In either case, another part of the plan is back-filling for the employee who moves into the position.
It is at this stage of planning where it usually is clear that no one in the organization is adequately prepared to step in and do the key person's job temporarily or permanently. While that might seem like a disaster, it is actually a critical step in the right direction. It forces thinking about what can be done.
For co-workers with unique process or product knowledge, the first step is forcing a brain-dump of that know-how. That means working together to document, in detail, the critical processes or the critical product knowledge that has been accumulated in these key individuals' heads.
For the controller, that would mean an operating procedure or procedures covering the steps to perform critical functions such as closing the books at the end of the month, including the thought process, sample documents, computer screen shots and other aids.
For order entry, it would be operating procedures for reconciling orders to quotes, entering orders, maintaining them, canceling them.
For the person with product knowledge, it might mean product application instructions, design standards and assembly and test procedures.
With the information documented, the next steps are identifying the temporary backups or permanent successors and training them. This is followed by a series of special assignments doing the job. The special assignments accomplish two things: They provide real practice under the guidance of the key individual, and they provide an opportunity to find errors or omissions in the procedures, which can be improved and corrected as needed.
For the salesperson with unique relationships, the approach is a bit different. In this case, the important things are capturing the names and contact information of key customers' decision makers and having a manager or co-worker make joint sales calls with the salesperson to develop their own relationships.
In some cases, there may be no internal succession candidate. Maybe the plan to back up the controller is to bring in a temporary CPA. That is all the more reason to document critical processes. How else would an outsider quickly get up to speed on the unique way the business does things?
Don't let the loss of a key individual create an unnecessary crisis.