Unanticipated crises can threaten even the most well-run company. And the risk is often greater for small to midsize businesses where the owner wears many hats. That’s why your company needs an emergency succession plan.
Unlike a traditional succession plan — which focuses on the long-term and is certainly important, too — an emergency succession plan addresses who’d take the helm tomorrow if you’re suddenly unable to run the business. Its purpose is to clarify responsibilities, preserve operational continuity and reassure key stakeholders.
Naming the right person
When preparing for potential disasters in the past, you’ve probably been urged to devise contingency plans to stay operational. In the case of an emergency succession plan, you need to identify contingency people.
Larger organizations may have an advantage here. After all, a CFO or COO may be able to temporarily or even permanently replace a CEO relatively easily. For small to midsize companies, the challenge can be greater — particularly if the owner is heavily involved in retaining key customers or bringing in new business.
For this reason, an emergency succession plan should name someone who can credibly step into the leadership role if you become seriously ill or otherwise incapacitated. Look to a trusted individual whom you expect to retain long-term and who has the skills and personality to stabilize the company during a difficult time.
After you identify this person, consider the “domino effect.” That is, who’ll take on your emergency successor’s role when that individual is busy running the company?
Empowering your pick
After choosing an emergency successor, meet with the person to discuss the role in depth. Listen to any concerns and take steps to alleviate them. For instance, you may need to train the individual on certain duties or allow the person to participate in executive-level decisions to get a feel for running the business.
Just as important, ensure your emergency successor has the power and access to act quickly. This includes:
- Signatory authority for bank accounts,
- Access to accounting and payroll systems, and
- The ability to execute contracts and approve expenditures.
Updating company governance documents to reflect temporary leadership authority is a key step. Be sure to ask your attorney for guidance.
Centralizing key information
It’s also critical to document the financial, operational and administrative information your emergency successor will rely on. This includes maintaining a secure, centralized location for key records such as:
- Banking credentials,
- Vendor and customer contracts,
- Payroll records and procedures,
- Human resources data,
- Tax filings and financial statements, and
- Login details for essential systems.
Without this documentation, even the most capable interim leader may struggle to keep the business functioning smoothly.
Also, ensure your successor will have access to insurance records. Review your coverage to verify it protects the company financially in the event of a sudden transition. Key person insurance, disability buyout policies, and the structure of ownership or buy-sell agreements should align with your emergency succession plan’s objectives.
Getting the word out
A traditional succession plan is usually kept close to the vest until it’s fully formulated and nearing execution. An emergency succession plan, however, must be transparent and communicated as soon as possible.
When ready, inform your team about the plan and how it will affect everyone’s day-to-day duties if executed. In addition, develop a strategy for communicating with customers, vendors, lenders, investors and other stakeholders.
Acting now
If you haven’t created an emergency succession plan, year end may be a good time to get started. Already have one? Be sure to review it at least annually or whenever there are significant changes to the business. The CJ Group’s Business Succession Planning experts are happy to help you evaluate areas of financial risk, better document internal controls and strengthen the processes that will keep your company moving forward — even in the face of the unexpected.
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