Succession Planning for Small Multi-Entity Businesses in Canada

Introduction and Business Overview

When it comes to corporations and businesses of any size, succession planning is something that can and should be planned out in advance. The need for succession planning exists in all countries, including Canada, the United States, and every other developed country in the world. Succession planning takes on many forms depending on what country the business is located in, how large the business is, who runs it, who owns it, and what the long-term plans for the business happen to be. Most large firms have entrenched and specific succession plans in place that center on promoting the best and brightest in the firm so as to continue the culture and performance the firm exemplifies.

When it comes to small to medium enterprises (SMEs), they tend to be much smaller in terms of executive structure and are quite often family-oriented. Even if other qualified people are present, ownership usually stays within the family. Regardless, there needs to be a defined succession plan in place so that the business can continue to operate and function properly when people exit due to retirement, voluntary departure, death, or illness. Simply picking a random employee or family member, however, is less than wise. That person has to be screened, groomed, and otherwise prepared to lead the firm. If the prospective person cannot or will not continue the themes, plans, and convictions desired by the current ownership, then someone else should probably be selected.

This report covers succession planning as a general topic and then focuses on a specific multi-entity Canadian firm (referred to throughout as the subject organization). All six of its operating entities function quite well but are dependent on each other and reside within a specific corporate structure. It is therefore important for any successor executive or owner — family or otherwise — to understand how the business needs to progress and improve over the years. After a summary of how the organization is currently comprised, a succession plan is offered to help it continue to grow. This growth can manifest as more revenue, additional sub-businesses, and perhaps even business units that are self-sufficient and able to stand on their own. That is not the case with any of the sub-businesses at present, but overall directions are positive.

The subject organization is an umbrella company with six different operating entities, each in a different stage of development:

Signature Financial Services: A bookkeeping and accounting firm that offers customized solutions for home, small, and medium-sized organizations that do not require full-time bookkeeping staff. For example, a small firm that needs tax filings or sales tax audits handled without hiring a full- or part-time employee would typically engage a firm like this to do the work.

Ottawa House: A co-working space that allows home-based businesses to enjoy the options and amenities that regular offices provide — copiers, fax machines, supplies, separate phone lines, internet, and equipment service contracts — without the overhead normally associated with maintaining a physical office. Such a virtual office also facilitates collaboration between business professionals and potential networking partners.

Zoom Courier: A local courier service that specializes in professional appearance, guaranteed delivery by firm deadlines, and "green" options such as low-mileage vehicles and optimized routing to minimize fuel usage. It blends the traditional courier model with modern sustainability principles, which are no longer optional for any contemporary business.

Granite Towncars: A transportation service intended to occupy the middle ground between low-end taxi or bus service and high-end corporate limousines. This service allows people to rent personal cars at a price point above taxis but below a full limousine, offering the flexibility and professionalism of a car service without the inconvenience of waiting for cabs or buses.

Frank Training: A direct, practical training service for business professionals and staff, covering team building, management training, leadership classes, customer service skills, and a broad array of business-related courses. Frank Training is on the forefront of a methodology known as LEGO Serious Play.

Update: A social media management company that allows business owners to manage and position themselves online rather than having executives and internal staff handle it personally. This outsourced model parallels the Signature Financial Services line of business, though the service focus is obviously different.

These businesses are distinct yet closely related. Any business that needs financial services could quite likely also need business training or social media management. As such, the opportunity for internal referrals is enormous. Rather than having to refer clients to external businesses, the subject organization can be a genuine "one-stop shop" for multiple services. Courier services and transportation are also available within the same corporate envelope. Typically, the range of services on offer would require a client to hire at least three to four separate companies; this organization provides all six. It can also track which services clients request that it does not yet offer and then decide whether a new business or an expansion of an existing one would be warranted or lucrative.

Given this multi-faceted structure, management must be equally multi-faceted. No one person or small group of people could manage all of these businesses alone, let alone perform the staff functions within them. Each entity would need at least one senior executive overseeing its operations, and someone would need to oversee all six component businesses as a whole to ensure that each performs as expected and required.

This is precisely where succession planning comes in. Just as the organization is multi-faceted, its succession planning must be multi-faceted. The complexity and diversity of these companies requires that a proper and complete strategic plan be implemented to ensure the firm's continuing success and operation. There is a well-known accounting principle — the going-concern assumption — that presumes a business will continue to operate. That assumption requires people to be identified and groomed to replace the current executives, leaders, and owners. The successors chosen must have the ability, skill sets, and desire to maintain the current level of integration so as to ensure the organization's continuing success. Bringing on someone who is unable or unwilling to commit to this could mean the gutting of the firm, and that should be avoided at all costs. New leaders will naturally bring new ideas, and there is nothing inherently wrong with that. However, good business practices are what they are, and there is little wrong with current operations aside from the lack of a succession plan that protects the future.

The organization relies on a series of codependent relationships resulting from backward integration. These firms are so integrated that no single business out of the six is self-sufficient; each must rely on the referrals and overflow of the other five. For example, Signature Financial and Update will likely exchange a great deal of business due to the similar outsourcing nature of both services and because many clients will need both and prefer a single vendor. Zoom Courier could deliver paper financial records from a client to Signature Financial, keeping revenue within the corporate envelope. Granite Towncars could transport a client to and from a meeting with Signature Financial, generating additional revenue for the group. Any successor managers must understand that while there may come a day when this inter-reliance is less critical, it is absolutely critical now, and the businesses should feed each other as much as possible.

The research question driving this study is: When a service-based small business grows as a result of backward integration, what are the effects on the succession plan as compared to product-based industries or large organizations?

The scope of this project encompasses the six entities described above, any existing and future staff, and the management structure. It excludes a property management company, a volunteer doula service, and any entities not currently in operation. It is anticipated that operational efficiency will improve as directors streamline operations and implement frameworks, plans, goals, and timelines for the succession plan.

The results of this report have two major sections. The first presents the results of the open-ended and closed-ended survey questions administered by the author. The second presents a succession plan infrastructure and scope for the subject firm. This plan is needed because the firm does not have a simple business structure that any common businessperson could step into without training or acclimation. A successor must be pre-selected and groomed so that they are prepared before the day they are needed, rather than having to learn on the fly after the succession has already taken place.

Methodology and Research Design

Just as there are two main parts to the results of this study, there are also two different sources of information and methodology. Part of the research comes from the survey described in the appendices of this report. The rest comes from the literature review. The surveys, collected data, and scholarly research — drawn predominantly from Canadian sources — all feed into the succession plan suggestions and recommendations presented later in this report. As with most recommendations for firms, these are specific to the subject organization's situation but can be adapted for use in many other instances. A simple template-based or "cookie-cutter" approach will not work, because recommendations for a services-based multi-faceted business are very different from those suited to a manufacturing-based or single-product business.

The author used mostly qualitative research rather than quantitative research for this report, because using hard numbers and data sets alone does not get the job done. While survey responses can be tabulated in terms of percentages and standard deviations, a large part of succession planning relies on soft skills and traits rather than raw measurable abilities. As such, qualitative research centered on succession planning is the primary focus.

An external review of scholarly literature is a key part of this research. More than twenty exterior sources were used, with a deliberate effort to include sources specific to or published in Canada. Using external resources is good and proper practice because it validates the assertions made in this report. Conducting a report like this without offering external sources to support its claims would severely undermine its credibility. Further, even where the topics and lessons are now familiar to the author, they did not originate with the author, and proper attribution is owed to the scholars and experts who have been there and proven their knowledge of this subject.

Per the appendices of this report, the author surveyed a number of business professionals. The survey assessed how many businesses each respondent operates, their age, whether they have succession plans in place, and what their future business plans are. Demographic questions were closed-ended and sought specific answers. However, some questions were intentionally open-ended to allow business owners and operators to provide details that would almost certainly not emerge from a closed-ended survey alone. The ability to tabulate scores and frequency is largely or entirely lost with open-ended questions, but the volume and depth of data that can come from them is much higher. As such, the specificity of closed-ended questions has been blended with the expansive possibilities of open-ended responses.

There are two hallmarks to any good research study framework: validity and reliability. Reliability is the concept that if a different researcher follows the same patterns, conducts the same research, and uses the same structure as a prior researcher, the results will be the same or very close the vast majority of the time. If the split between "the same result" and "a different result" is roughly 50/50, that is a clear indication that the research design is not solid and/or the conclusions drawn cannot be supported by the data collection performed.

The other hallmark is validity. Reliability alone is good to have, but one must also have validity. For example, if someone weighs an item on a scale, one would expect the result to be the same each time an item of the same weight is placed on it. If something weighs twenty pounds and the scale reads twenty pounds every time, the scale is reliable. However, if the scale is improperly calibrated and the item actually weighs twenty-five pounds, the scale is reliable but not valid, because it does not reflect the true weight of the item.

Literature Review: Succession Planning in Canadian SMEs

This literature review pulls from outside sources and ties them directly to the succession planning needs of a multi-entity service firm. The first area of review concerns business models and the associated strategies that can and should be used to perpetuate revenue streams over time. For example, the practice of using one business unit's traffic to create revenue for another part of the corporate family can even happen within a single subsidiary through the kind of cross-selling that Apple Corporation executes. Apple could have sold iPods alone and done quite well. However, they paired the iPod with iTunes, Apple TV, and the iPhone in a way that generates ongoing and escalating revenue from each customer. Put concisely, Apple draws customers in with one product and then offers a growing ecosystem of free and paid services — music, movies, podcasts, audiobooks — that keep the customer returning. This stands in contrast to Microsoft, which had its own player (the Zune) but nothing comparable to Apple's upselling and customer-retention ecosystem.

One source found for this report focuses on a risk that smaller firms like the subject organization should be careful to avoid. While many larger firms have firm succession plans in place, the same tends not to be true for smaller to medium-sized businesses and family-run enterprises. Reasons for this include the following:

Another article focused on small to medium-sized enterprises in the Canadian business space, specifically the work of Bruce and Picard (2006). Like the work of Ip and Jacobs, they center on the aging business owners of Canada. They approach the subject in a more general sense rather than focusing exclusively on owners of retirement age who face vexing succession issues or families with no heir-apparent. Just as in many other countries, Canada is facing a surplus of business owners who have a decision to make: spin down operations, hand off to a family member, or sell to a third party. The usual preference is to keep things in the family. The statistics are striking. When asked how many business owners intend to sell or otherwise leave their current business arrangement within the next five years, the number is just over four in ten (41%). When extending that time horizon to ten years, the number rises to over seven in ten (71%). Regardless of when the departure will occur, more than four in five plan to leave due to reaching retirement age.

As noted in this study, about two thirds of SMEs have a formal succession plan. Of the remaining third, most have a plan but it is less regimented and formal. About seven percent of the SMEs surveyed by Bruce had no succession plan of any sort, formal or informal. One major hurdle to transferring ownership — whether within a family or to a third party — is the legal and tax-related complexity involved. Considerations include capital gains, the business's revenue, its debt situation, and its tax situation.

One thing of major benefit to future or selected leaders is a well-rounded business education. While little can replace real-world experience in the field in which a person will operate or lead, getting the fundamentals down before entering the business environment can save a great deal of time. Being exposed to a robust academic environment can lead to better performance when it comes to recruiting, planning, and socialization as it relates to dealing and doing business with colleagues, coworkers, and customers.

Research also indicates that one of the more dominant business forms that lends itself to family succession and inheritance — in both leadership and ownership — is the family-run farm. A study reviewed for this report looked specifically at Canadian farms that were family-owned. Most farms in North America (in terms of sheer number, though not size) are family-owned and family-run operations, and this tends to transcend generations as one patriarch or matriarch passes the farm to another person upon retirement or death. While some might assume that moving a farm from one generation to the next is much simpler than a transition in a traditional corporation, that is far from the case. Research indicates that transitioning a farm from one generation to another is "not a single act but a multi-staged process that may take many years." It is commonly held that the succession process on a farm begins before the prospective heirs even enter the business.

When one is dealing with a combination of family and business dynamics simultaneously, the process can be quite complex. Family factors that lead to potential issues include heirs jockeying for favor and money, heirs not seeing eye-to-eye with the people bequeathing the operations, or disagreements among potential heirs themselves. Business factors include the intended future direction of the firm, expansion plans, what will and will not be produced, staffing decisions, and who will make those decisions. Having multiple businesses, multiple operations, and multiple generations involved only further complicates matters. Quite often, concentrating all power in one person is too much, and diffusing it may make more sense — for example, giving control of livestock operations to one sibling and crop operations to another.

A common source of fresh leadership candidates are immigrants. Using Canada as an example, businesspeople from other parts of the world — Europe, Asia, and the United States — can enter the country and invest and operate within Canadian borders. There are often conditions attached to how quickly such immigrants must invest and buy into businesses. However, allowing such an infusion of talent and investment can benefit Canada and other countries when businesses do not already have an heir-apparent in the form of an existing manager or family member.

One perspective gaining increasing attention is the idea that family-based succession planning should not be forced or coerced when there is no proper heir-apparent. This pertains less to situations where a clear heir does not exist due to a lack of heirs or heirs who are too young, and more to situations where potential heirs are simply not prepared or genuinely willing to do what is needed. Passing along the family business to the wrong person can destroy the business. The person who inherits may run it into the ground, or gut and sell it at the first opportunity.

This is not always a simple matter in some countries or situations. In many countries, passing a business to a non-family third party is significantly more expensive than passing it to a family member, sometimes prohibitively so. Even setting legal barriers aside, a pattern of automatic family succession is not always the best approach. There has to be a review of any potential successor's business acumen in addition to their general intelligence — and this is true of family and non-family successors alike. A nation's economic performance is determined in large part by the intelligence, performance, and planning of its major and minor business leaders. Intelligence itself is multi-dimensional and includes so-called "street smarts," "book smarts," emotional intelligence, and social intelligence. Anyone who leads a firm must work with and lead other people, and blood relations alone do not guarantee compatibility or competence. That said, business success and acumen do appear to run in families — whether due to environment, heredity, or some combination of the two depends on the individual case.

When it comes to general succession planning metrics in Canada, perceptions about existing arrangements can vary even within a single family business. Owners and current power figures of a business may feel that they have succession plans well measured and planned out. However, potential or actual successors often feel the opposite. This matters greatly given that, depending on the country, two thirds to nine in ten businesses are family-owned and operated. In the United States — Canada's neighbor to the south — family-driven businesses may number anywhere from 4.1 to 20.3 million, representing twelve to forty-nine percent of the gross domestic product of the entire country. Similar metrics are seen in Canada.

Those figures are likely to shift greatly in the coming years due to demographic inversion. In the late 1940s and 1950s, there was a dramatic increase in births following World War II — the Baby Boom — in both the United States and Canada. The 1960s saw a sharp reversal, with birth rates cut in half or more in certain areas. One or two generations removed from that demographic peak, the proportion of older people in both countries is disproportionately large relative to younger cohorts. The number of businesses needing to be passed on does not match the number of successors available to receive and operate them. The private sector is largely driven and perpetuated by small, often family-run businesses, and the patterns unfolding right now are not sustainable without a significant paradigm shift.

Regardless of these broader trends, it is commonly accepted that any succession plan needs to follow the same general process. As described by Christensen (1953), the steps are: identifying a pool of potential successors; specifying the necessary criteria; designating the selected successor; and communicating the decision to the selected person or persons. A timeline must also be established for when the person begins taking on their new role and when the changeover becomes official. While it would seem obvious that most family businesses ensure all of these steps are in place, there are indeed businesses that do not sufficiently formalize and document these decisions, leaving much of the progression to chance. Factors that tend to make succession planning a priority include the health of the ownership, the presence of family harmony or disharmony, potential payoffs for the firm, and the overall stability of the business.

Given the above, a few key ideas and frameworks can be advanced. First, the success of a succession planning arrangement depends heavily on whether the existing person currently in charge is willing to step aside at the proper time. If a successor has been selected but the incumbent owner or executive hesitates due to concerns about the incoming person, there will be issues. There must be trust and respect involved, whereby the incumbent accepts that an orderly and planned progression is necessary and passes off the reins at the right time without unneeded or unfounded hesitation. So long as the successor was selected with proper due diligence and forethought, the details have already been worked out and there should not be a problem.

Second, and related to the first, there must be a competent successor present in the first place. If a strong successor is identified, the specter of the incumbent's reluctance to step down diminishes considerably. There would likely be a positive correlation between good post-succession outcomes and the presence of a strong successor before the hand-off occurs. A major wildcard in both scenarios is the perceptions and feelings of the potential successors themselves. While it is certainly optimal for all parties to put in an honest effort and focus only on what is good for the business, there are many situations where this is simply not the case — whether due to dysfunction between siblings or cousins, acrimony related to a failed marriage, or other interpersonal conflicts.

There are real consequences to not having a succession plan in place, and this is doubly true for family operations. When the path of succession is not clearly defined, the outcome often depends on the preponderance of those who remain — whether disparate owners and stockholders or probate-induced inheritance in the case of a majority owner who passes without a clear line of succession. For example, if a person owns 75% of a firm and then dies, their spouse will typically inherit the power to do as they will with that business stake. Sometimes this works out; other times it can be a proverbial train wreck.

Even when massive amounts of money are available to a successor, those resources can become "dead money" if they are not leveraged and used properly. Money collecting modest interest in a bank is not going to do much for a firm if it is not being invested, used for expansion, or employed in keeping operations in excellent condition. Quite often, money gets tied up in trusts and other pre-defined monetary arrangements, both before and after disbursement, and large sums resulting from successful business operations end up wasted or inefficiently spent. It takes a combination of good money reaching the right people and those people using it in a way that keeps the business thriving.

It also has to be noted that not all loss of financial power is due to neglect. The ability to transfer and deploy inherited money or business frameworks is often inhibited by legal, cultural, and regulatory frameworks. Estates of any major size are taxed upon the death of their owner. These laws vary considerably by nation, but countries like Canada, the United States, Australia, Germany, and France share rough similarities in terms of what the government claims from assets that may have already been taxed multiple times.

Some organizations face higher stakes than others in succession planning. Healthcare and government agencies are prime examples — they truly need a solid system in place because there cannot be a gap between when one person leaves a role and another fills it. Just as in the private sector, a good pool of potential successor candidates must be identified, paired with appropriate positions, and informed of their candidacy along with what is expected of them. The "sink or swim" methodology should never be applied to a successor. There will inevitably be a period of adjustment and learning after a changeover, but the duration of that adjustment period should be minimized as much as possible. Existing leaders are best positioned to identify the next generation of leaders — they know the role, what it takes to succeed in it, and are therefore best equipped to evaluate candidates objectively.

Finally, colleges and universities are a major source of future leaders for the private sector. Nearly three-quarters of all college personnel in Canada as of 2013 were baby boomers, meaning they were all approaching retirement age. To illustrate with a real-world example: the Ontario college system has approximately nine thousand employees, of whom about two thousand are administrative. If seventy percent of those people are at or near retirement eligibility, more than six thousand (approximately 6,300) may be leaving soon. Some will stay well into what would traditionally be retirement age, and some will teach or serve until they die. However, a significant proportion will retire and will need to be replaced, or there will have to be a regression in the academic and administrative services offered. This underscores that succession planning is needed in educational institutions as well, to ensure that the educational system does not falter.

When surveyed about the importance of succession planning, seven in ten college personnel said it was "very important." Only five percent felt it was "not important." One approach these colleges have tried — not yet discussed elsewhere in this report — is mentorship. Pairing someone who is inexperienced with someone who knows the job, has what it takes to succeed, and already has the requisite tools provides invaluable experience to someone just starting out. It can also help a person determine whether they even want to become a successor, and for what type of position. If those questions can be answered in advance, it saves a great deal of time, resources, and aggravation for all involved.

Conclusion

In the end, it is clear that the subject organization is heading in the right direction. It could concern some observers that none of the businesses in the corporate envelope is individually self-sufficient. However, that fact is not going to prevent the firm from succeeding and thriving. Indeed, keeping those businesses separate is probably good and proper because it is easier to analyze and project how each unit is performing. If all the businesses were conflated into one unit, it would be far more difficult to determine which units produced a net gain and which did not. Units that are a net loss in terms of revenue versus cost should be examined closely to ensure that good money is not being thrown after bad. At the same time, it sometimes takes considerable time to turn an idea into a functioning business and then a profitable one. Even the most powerful economic juggernauts initially lost money for months or years before becoming profitable.

For a business still in its nascent stages — in terms of having business units that are strong enough to stand on their own — continuity in business operations and executive structure cannot be over-emphasized. As noted throughout this report, it can be an intensive and complex process to identify family members or non-family members who can and should succeed the existing ownership or management. The organization will need to choose its successor managers and executives very carefully. Those individuals will need to understand the firm's objectives, how the business operates, and what the critical success factors are. Trying to fit a square peg in a round hole will not work, and will lead to poor management and ownership decisions. With proper planning, however, a well-executed succession plan can ensure that the firm's momentum, integration, and customer-focused culture endure for the next generation of leadership.

Appendix I — Survey Results: Multiple Choice Questions

1) Please provide your age group.

a. 21 to 30 (6 responses — 15.8% of sample)
b. 31 to 40 (16 responses — 42.1% of sample)
c. 41 to 50 (12 responses — 31.6% of sample)
d. 51 to 60 (2 responses — 5.3% of sample)
e. Over 60 (2 responses — 5.3% of sample)

2) How many organizations do you have ownership of and are actively involved in the operation of?

a. 1 Business (24 responses — 63.2% of sample)
b. 2 Businesses (10 responses — 26.3% of sample)
c. 3 Businesses (2 responses — 5.3% of sample)
d. 5 or more businesses (2 responses — 5.3% of sample)

3) If you have two or more businesses, are they dependent on one another or do they share resources, clients, or suppliers?

a. Yes (9 responses — 25% of sample)
b. No (8 responses — 22.2% of sample)
c. Not Applicable (19 responses — 52.8% of sample)

4) How long have you owned your current businesses?

a. Less than five years (20 responses — 52.6% of sample)
b. 6–10 years (8 responses — 21.1% of sample)
c. 10–15 years (5 responses — 13.2% of sample)
d. 15–20 years (3 responses — 7.9% of sample)
e. 20+ years (2 responses — 5.3% of sample)

5) Is ownership/operation of your businesses your primary source of income?

a. Yes (24 responses — 63.2% of sample)
b. No — have other employment (7 responses — 18.4% of sample)
c. No — part time by choice (1 response — 2.6% of sample)
d. No — business is not yet developed enough to sustain full-time income (2 responses — 5.3% of sample)
e. No — business is a hobby (3 responses — 7.9% of sample)
f. Other (1 response — 2.6% of sample)

6) Please provide the locations/clientele your business(es) service(s):

a. Thunder Bay/Ontario and surrounding area (22 responses — 57.9% of sample)
b. Locally in another city other than Thunder Bay/Ontario (1 response — 2.6% of sample)
c. Provincially (4 responses — 10.5% of sample)
d. Nationwide (5 responses — 13.2% of sample)
e. International (6 responses — 15.8% of sample)

7) Please provide the approximate annual revenues of your business(es) combined:

a. Under $50,000 (12 responses — 31.6% of sample)
b. $50,000 to $250,000 (8 responses — 21.1% of sample)
c. $250,000 to $500,000 (3 responses — 7.9% of sample)
d. $500,000 to $1,000,000 (9 responses — 23.7% of sample)
e. Over $1,000,000 (6 responses — 15.8% of sample)

Appendix II — Open-Ended Survey Questions

1) What does your business sell?
2) When do you intend to retire or exit your business?
3) Why do you intend to exit your business?
4) If you intend to sell or transfer your business, has your successor already been identified?
5) If not, have you begun to search for a successor?
6) Does your business have a succession plan, whether formal or informal, in place?
7) Do you intend to prepare a succession plan at all?
8) If you do plan to prepare a succession plan, when do you plan to do so?
9) Have you assisted in the preparation of the succession plan?
10) Would you be willing to participate in a short interview regarding your responses to this survey?

Appendix III — Glossary

Corporation: A business entity type formed for a variety of reasons, including eliminating or reducing personal legal liability and reducing or strategizing the payment of taxes.

Nepotism: The practice of promoting or bequeathing a business to family members as opposed to a non-related person. Commonly frowned upon in larger corporations with disparate ownership, but pervasive in smaller firms where businesses typically stay within the family line.

Corporate Parent: The firm under which all "child" and subsidiary companies fall. The corporate parent retains this status even if the smaller sub-companies were to become self-sufficient.

Cronyism: In the context of succession planning, rewarding and enriching one's friends at the expense of selecting the best candidates for succession. This practice occurs to some degree in virtually all firms but should generally be avoided.

Death Tax / Estate Tax: Taxes that governments may place on a family or business when property or money is passed from one generation to the next. Factors influencing whether or how much tax is paid include whether the spouse is still alive, the total value of the estate, and the form in which the assets exist.

Grooming: Preparing someone to become a future owner, executive, or both. People are often identified as successors before they are ready to assume the role. A person selected for grooming generally must have innate qualities that qualify them to learn and grow into the role that will be required of them.

Incumbent: A person currently in power as an executive or owner of a firm, who will eventually need to pass the reins to a successor when a previously planned succession is executed.

Leader: Commonly the owners or executives of the firm, though leadership can also include mid- to lower-level managers, subject-matter experts, and long-term employees. In the context of succession planning, present and future leaders are clearly defined — unless a succession plan simply does not exist, in which case succession typically follows an inheritance or probate process.

Private Sector: The part of an economy that is privately held and operated. This includes all profit-based and non-profit organizations that are not owned, operated, or controlled directly by government.

Public Sector: Government agencies and elected officials. This includes members of Congress or Parliament, government agencies of any type, and their equivalents at the federal, state, provincial, county, and local levels.

Self-Sufficient Company: A company whose revenues and business leads are sufficient to operate without support or funds from the parent company or other child companies in the corporate envelope.

Small to Medium Enterprise (SME): Enterprises that are small to moderate in size, not large firms in terms of revenue, headcount, or volume. SMEs can be international in reach but are typically fairly small in terms of headcount and other outputs.

Subsidiary: A smaller or "child" firm that is part of a larger company or conglomerate. For example, Lincoln Motor Company is widely considered a subsidiary of Ford Motor Company, as the latter controls and owns the former.

Succession Plan: A general plan created by a business regarding who will succeed existing managers and executives when they leave the firm due to retirement, termination, or voluntary departure.

Successor: A person selected to take the reins from the current owner or executive of a firm.