The Power of Succession Planning

Managing Key Employee Risk in Small Businesses

Small businesses with fewer than 20 employees face significant risks, primarily centered around key employee dependency.

In these organizations, a handful of essential employees often hold the business together, making the company vulnerable if one suddenly leaves or is unavailable.

This article delves into strategies to mitigate key employee risk and emphasizes the importance of succession planning.

Identifying the Risks

For businesses with small teams, redundancy is a luxury they can't always afford.

The absence of a key employee, even for a week, can derail operations.

This scenario poses a critical question: what happens if the only person who understands a crucial process is unreachable?

Strategies for Risk Management

To address this challenge, consider these two approaches:

1. Scaling and Team Growth: This long-term solution involves expanding your team to create redundancy. While this takes time, it ensures that no single employee becomes indispensable.

2. Leveraging Contractors and Advisors: In the short term, rely on a bench of contractors and advisors who can step in when needed. These professionals don't have to be full-time employees.

Fractional workers can document their processes and store them in a shared drive. This documentation ensures that another contractor can quickly take over if they leave suddenly.

Moreover, contractors can assist key employees by handling lower-level tasks, allowing key employees to focus on high-impact activities. This setup enhances efficiency and often pays for itself by increasing productivity.

Small business strength is in its hired people. Cross-train and plan for succession. -Deb Curtis

Cross-Training and Team Building

Building a resilient team involves more than just hiring additional staff or contractors. It’s crucial to invest in cross-training your employees.

Each team member should understand multiple roles within the company, ensuring smooth operations even if someone is unavailable.

You can also include fractional 1099 contractors in your cross-training efforts. Contractors who understand your business processes can step in seamlessly when needed, further reducing downtime and operational disruptions.

The Intangible Value of Building Key Employees for Succession Planning

Succession planning is one of the most critical aspects of managing key employee risk. Business owners should integrate succession planning into their annual business strategy.

Identifying potential successors, seasoned employees, and fractional contractors within the company ensures continuity and stability.

Here’s how to approach this:

1. Identify Potential Successors: Regularly evaluate your team to identify employees who can take over the business, including fractional contractors. These individuals should demonstrate a keen understanding of the business, strong leadership skills, and a commitment to the company’s success.

2. Engage in Heart-to-Heart Conversations: Once you’ve identified a potential successor, discuss their interest in acquiring the business. Providing them with the first right of refusal to purchase the company soon can motivate them, fostering loyalty and dedication.

3. Performance and Interest Reviews: Through annual reviews and conversations, continuously assess the potential successor's performance and future business ownership buyout interests. Ensure mutual interest in the ownership transition and that the employee's performance remains above average.

4. Leverage SBA Financing: Inform your key employees about the benefits of SBA-backed financing. Most lenders will finance 100% of the buyout loan project, making the transition smoother and financially feasible for both parties.

Planning for the future together is crucial for established small business owners and seasoned key employees considering business ownership transition.

Engaging in succession planning and leveraging SBA financing can ensure a smooth transition and the business's continued success.

Let's ensure we continue to support small businesses' retention, longevity, and growth together through annual succession planning focused on key employee buyouts.

- Deb Curtis

Deb Curtis is a seasoned expert in small business buyouts, specializing in key employee ownership transitions.

Deb ensures a smooth transition for both parties by focusing on preparing, prequalifying, and sourcing 100% SBA-backed financing.

She values these transactions' private, cost-effective nature, minimizing headaches and maximizing success for all involved.

For more Main Street business buying and financing insights:

Follow: Curtis Small Business Finance Solutions, LLC dba Deb Curtis and Business Buying Banter - No BS

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