Succession Planning: Part 2

Continued from part 1

Research has shown that 70% of family businesses do not survive from generation to generation. This is quite sad bearing in mind the hard work of setting up a successful business.

If you own a family business and you want to retire, it will not just be a matter of waking up one day and deciding not to go to work .So the question of what happens to the business in your absence is paramount. Who's going to manage the business when you no longer work at the business? How will ownership be transferred? Will your business even carry on or will you sell it?

Business succession planning seeks to manage these issues, setting up a smooth transition between you and the future owners of your business. With family businesses, succession planning can be especially complicated because of the relationships and emotions involved - and because most people are not that comfortable discussing topics such as aging, death, and their financial affairs.

Why do the businesses die a natural death when the big man / woman dies? In most cases, the business "killer" is poor succession planning and family discord, both issues that a good family business succession plan will cover.

Ideally, the plan must address 2 pertinent issues:

1.     Management

2.     Ownership

The two issues are not necessarily the same. For instance, you may decide to transfer management of your business to just one of your children but transfer equal shares of business ownership to all your children, whether they're actively involved in operating the business or not. You may even decide to transfer the management to professionals and let the kids be at the board level.

Important points to consider as regards the succession planning:

1.     Start it early preferably minimum 5year before the time you have earmarked for retirement. The longer you get to spend on family business succession planning, the smoother the transition process is likely to be.

2.     Involve the family in discussing the planning. Under your guidance they would definitely agree. Let them dialogue and agree, most likely they know their strengths and weaknesses and amongst themselves, they know who can lead them.

3.     Be realistic as you plan: You may want your first-born son to run the business, but does he have the business skills or even the interest to do it? Perhaps there's another family member who is more capable. It may even be that there are no family members capable of or interested in continuing the business and that it would be best to sell it or get professionals to run it. Examine the strengths of all possible successors as objectively as possible and think about what's best for the business.

4.     Train your successor(s) and work with them: How can you expect your successor to take over and run your business successfully if you haven't spent any time training him or her? Your family business succession plan will have a much better chance of success if you work with your successor(s) for several years before you hand over the reins. For solo entrepreneurs, sharing decision making and teaching business skills to someone else can be difficult, but it's definitely an effort that will pay big dividends for the business.

5.     Get outside help with your business succession planning: Lawyers, accountants, financial advisers - there are many professionals that can help you put together a successful succession plan? There are even companies that specialize in family business succession planning, who will facilitate the process of working through both family and succession plan issues.

If you want to pass your family business along to the next generation, putting off business succession planning is the worst thing you can do. A good succession plan can ensure that you have the funds you need to retire and that the business you have built continues to thrive in the hands of the next generation.

What of those tough colonial like fathers and grandfathers?

My grandfather was as tough as they come. If you dared touch what he considered his own, he’d hit you with a rungu. The mzee had all his sons and daughters in his pocket. He was kinda organized and had some hand written notes on who should inherit what. Unfortunately, upon his demise, the notes were contested and a long and tiring battle in the courts ensued. He had two wives and the younger one contested the written notes because she only had one son and the distribution of the wealth was based on the number of sons from both sides. After more than 10 years the case was concluded. Unfortunately, some of the heirs had died along the way. Quite sad. Some properties were lost midway the feuds. I remember my dad talking of some 5 prime plots in Juja that were grabbed….so sad. Some businesses were run down as the sons and wives fought. He had some coffee farms and unfortunately the bushes had to be cut off because no-one was taking care of them. He simply did not bring the sons and the wives together to plan on how he’d be succeeded. This is a pitfall we must avoid.

Next we shall talk more about writing a will.