A recent announcement by Jack Ma, the founder of one of the biggest e-commerce giants in the world, Alibaba, took everyone by surprise. He decided to step down as the Chairman of the Alibaba group as it marked its 20th anniversary and promoted their chief executive officer Daniel Zhang as the Chairman of the board.

Do you think it would have been possible for Jack Ma to step down as the leader of a rapidly growing company if he didn’t have a succession plan in place? Absolutely not. He had a solid business succession plan that helped him retire at the age of 55! And this is what every entrepreneur should learn from. 

There comes a point when you need to embrace transition and hand over the reins of your company to someone else. Even if you plan to sell your company, you need a plan that facilitates smooth transition and which allows you to earn money post retirement or even change your career path. Let's see how.

When you decide to leave your business, you can do either of the following things:

• Hand over the position to someone in the family
• Hand over the company to a colleague who is best suited to take over
• Sell the company to a third party/buyer
• Sell the company to someone within the company

Once you have decided what you want to do, here are the next steps to plan a succession:

1. Business valuation

If you don’t plan to sell your company, it's best to start by conducting a business valuation which will help you plan your retirement, secure your future by purchasing insurance plants etc. In business valuation, you need to decide a set dollar value for your business or what your existing shares are worth etc. This can be done either by hiring a certified public accountant or creating an agreement between all partners.

Also read: The valuation game: What does it mean?

2. Find a successor

If you are handing over the company to someone else, then you need to prepare for a smooth transition. For example, you plan to pass on your company to a close family member, then you need to do it via a proper estate planning process. If you have a medium scale business, then you may want to prepare and train the best people from your organisation to take over. 

It is always a good idea to plan ahead of the retirement as finding a good leader, who can take full control of the empire you have painstakingly built over a period of time, may be difficult. And even if you find one, you need to mentor them over a period of few years so that the transition is smooth. Rather than hiring someone from outside, it is always better to leave the company in the hands of the people who are already working for you.

3. Train them

Once you have zeroed in on the leader you want to handover your company, the next step is training them. Build a training plan well in advance to ensure that the succeeding leader has ample time to learn the ways of the company. You must ensure that the amount of time spent in training the person yields a good ROI (return on investment). And as a backup plan always have in mind other employees who can take over if the successor somehow fails to.

Also read: The truth about trust

4. Review and update your plan

Building a succession plan takes a lot of time and effort. But once you have built one, it is necessary that you review it. If necessary hire a board of advisors and seek for their expert advice on how you should proceed. Also, over the years policies might change and new changes can be implemented in the organisation, hence it is equally important to keep updating the plan to ensure a smooth transition.

5. Ease the tax situation

This situation arises if you are handing over the company to someone in the family. In such cases, estate planning and succession planning becomes important. Consider taking care of taxes like income tax, generation-skipping tax or estate tax.

Plan your business succession well in advance to avoid last minute hassle and to make the transition smoother for you, the successor and the organisation. 

How many of you have already planned your succession? Let us know in the comments section below.

Also read: Why we need younger boards in the 21st century

Image source: shutterstock.com

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