Ensure your company keeps running smoothly by determining who will replace you when it’s eventually time to retire.
Running a business without a succession plan could lead to arguments between the heirs of a deceased owner, or between heirs and employees. CNBC’s Anna Robaton explains that this situation could sink even the most successful business.
This is why it’s important to strategise around a ‘right-hand man’ or woman; a second-in command who can take your seat upon retirement or (an untimely exit).
70% of inherited businesses fail
It’s reported that only 30% of family businesses passed on to the next generation survive. A shortage of strategic planning, not setting realistic business goals, non-compliance with specific laws pertaining to succession, and inadequate estate planning are some of the reasons why they don’t succeed.
This is why business experts advise that you look at the following key areas to determine who will take the reins in your business upon your exit:
1. Choosing a successor for your business
You may have more than one successor in mind for your business, which is why it’s important to define what is required to lead your company to future success. It’s recommended to include your staff in this rebuilding process. By including staff, you gain buy-in, which makes it easier to re-develop and re-engineer for your exit.
For family businesses in particular, removing emotions from business conversations could be challenging. But, it’s essential to have these conversations.
Related: How to implement a formula for succession
By, formalising how you communicate with each other, though, and setting up time to have these tough conversations you could ensure that transferring the company to the younger generation takes place correctly.
Upon documenting your succession plan, setting out clear governance procedures and heeding the financial implications, you can start preparing for possible hindrances to the plan.
2. Consider the compliance component
There are numerous commercial and practical considerations, and legal compliance obligations to take into account when restructuring for your exit. It’s key to factor in BB-BEE in the South African context if you run a non-black owned enterprise.
Diale Mokgojwa, Senior Manager, Value Chain financing, at Standard Bank, highlights the option of selling a portion of the business and including loyal employees as part of your succession plan.
“The potential of structuring the succession plan to cater for Black Economic Empowerment (BEE) interests has to be put on the table,” he says.
3. The importance of estate planning
Estate planning is crucial for anyone with any debt whatsoever. A clearly drafted will dictates not only the personal succession of your assets but can also outline the rights of succession for your business.
Related: Succession planning – it pays to do it
“In the end, succession planning is about people and the future, and to a lesser extent, about money,” says Errol Meyer, Senior Manager, Advisory Propositions at Standard Bank.
“Making sure that plans for the future include financial planning, estate planning and wealth planning and holistically consider all possible future scenarios is the most important task any business owner can face.”
Standard Bank can assist you with business succession planning and the drafting of an estate plan. We can also store these documents safely and act as executors on your behalf.