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Maintaining Business Value When a Company Leader Leaves

By developing a carefully crafted leadership transition plan, small businesses can minimize the uncertainty that comes with losing a talented leader and ensure continuity of operations.

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BY Bob House - 28 Jul 2017

PHOTO CREDIT: Getty Images

Strong, charismatic business leaders inspire employees and customers. When such a leader leaves a small business, it can create a vacuum which can throw the entire operation into chaos and jeopardize the revenue streams the business depends on for growth and profitability.

But there's another issue that small business owners need to worry about: business value. Whether you know it or not, the exit of a leader today could drive down the sale price and make it more difficult for you to exit the business down the road.

The exit of a leader creates unique challenges for small businesses

Losing a talented leader isn't easy for any organization. But it can be especially painful for a small business, regardless of whether or not the individual leaves on good terms. Unlike large corporations, the small business leadership pool is limited. Since leaders often serve as figureheads for small businesses, the loss of a single leader can have serious repercussions.

If the leader was responsible for a specific team or department, then his or her exit will undoubtedly create anxiety among team members. In a worst-case scenario, other workers will jump ship, creating a talent gap in the organization. These kinds of workforce issues undermine performance and negatively impact revenue, profitability and business value.

Leadership turnover can also affect the company's relationship with customers, depending on the leader's role and function. For example, if the leader was responsible for maintaining relationships with large accounts, those accounts could be at risk. The resulting loss of revenue will appear on the company's financials, reducing its value in the business-for-sale marketplace.

Operational disruptions, workforce instability and revenue decline can plague a small business for years. It's not uncommon to find small companies struggling to recover long after the departure of a key leader.

Planning is the key to a smooth leadership transition

The worst time to develop a strategy for filling a leadership gap is after a key leader notifies you he is leaving the business. It's a safe bet that sooner or later, one of your company's leaders will move on to greener pastures, so by developing a strategy now, you can avoid headaches and financial consequences later.

• Create a transition plan. You need a transition plan for every key leadership position in the organization. In some cases, this will mean grooming subordinates to eventually fill their supervisors' roles; in others, it means naming a temporary replacement while you conduct an outside search. Either way, you need to know what you will do and who will fill the role if the current leader of a core function or business unit is no longer attached to the company.

• Document knowledge. Part of the transition plan should include documenting current leaders' processes and routines. If you haven't done so already, ask your company's leaders to organize and record the details of their roles in the business. Everything from customer contacts to passwords to key documents is fair game.

• Focus on core business functions. When a leader leaves the organization, your first priority is to make sure core business functions (e.g., sales, billing, account management) are covered. Execute your transition plan as quickly as possible. If you don't have a transition plan, you may need to temporarily fill the role yourself.

• Calm the workforce. The exit of a company leader creates a sense of anxiety among employees. As soon as possible, meet with the employees on the leader's team to hear their concerns and communicate your plan to fill the leadership vacancy. Depending on the leader's influence, you may also need to address the leader's departure with the entire company.

• Reassure customers. If the leader was highly visible or had direct relationships with large accounts, you should reach out to high-revenue or influential customers to reassure them that it's business as usual at your company. In most cases, a simple phone call or on-site visit is enough to resolve customer concerns.

• Identify the reason for the exit. Once the business has regained its footing, consider why the leader left the business. Although it's not unusual for leaders to leave small businesses to pursue other opportunities, there may be lessons you can learn to prevent the departure of other key people in the future.

In a small business, losing a respected leader can feel like the loss of family member. During times of transition, the company looks to the owner for reassurance. By developing and executing a carefully crafted transition plan, you can minimize uncertainty and ensure continuity of operations - and just as importantly, avoid the loss of business value.

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