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Succession plan is key for longevity of family start-ups

Having a robust succession plan, based on sound professional advice is, critical to your business’ longevity. Photo: Supplied/Ventureburn
Having a robust succession plan, based on sound professional advice is, critical to your business’ longevity. Photo: Supplied/Ventureburn

It takes more than just hard work to ensure business continuity in future generations. Having a clear and concise succession plan critical to your start-up’s longevity. Here is a step-by-step guide to drafting your own succession plan.

Research shows that approximately 75% of all businesses fail to survive past their first generation of owners. That number rises to 85% by the third generation, and over 95% beyond that. If you have put your blood sweat and tears into making your business a success, the idea of having it fail once you are no longer at the helm can give you sleepless nights.

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That is why having a robust succession plan, based on sound professional advice is, critical to your business’ longevity.

Gert Bezuidenhout, regional executive at Sanlam, says, “There’s a huge amount of emotional attachment when it comes to family businesses. Keeping them alive and well is often a key reason why families thrive. Once an effective succession plan is in place, a family can live confidently knowing that the business has the best possible chance of being future-fit and flourishing for the long-term.”

How to get started with succession planning

It all starts with having open conversations with your family. Talk to them about your shared values, expectations, and business vision. What are the ethical standards you expect everyone to uphold, that you’ve built your business upon? What’s your vision for the business’ future? Drawing up a document that addresses these questions is this a solid foundation to work from.

A succession plan outlines who the successor(s) wants to own and run the business, and how the handover process should unfold.

  • Most importantly, the whole family needs to co-create and agree to the plan.  
  • There needs to be a strong structure in place. For example, will the business be bequeathed to one or more of the children, or will it be sold to them? If none of the children have the interest/ requisite skills, then should the business be transferred to a family trust, with an external manager appointed?  Is ownership succession the right route or should the business be sold on the open market?
  • The plan must include a strategy to train the successor before ownership is transferred.
  • The owner’s retirement plans need to be addressed. Have you made provision for retirement separately from the business or are you expecting the business to financially support your retirement? It’s imperative this is openly discussed.

A step-by-step guide to drafting a succession plan

The main aim of the plan should be to ensure harmony in the family, plus the business’ continuity. The plan needs to reflect the future needs of the family, plus the business.

Plot a development plan for the prospective successor – aka, the qualifications the person needs, how they’ll be ‘groomed’, and how their performance will be monitored. It should outline:

  • employment rules;
  • requisite qualifications and work experience;
  • the development plan – training and mentorship needs; and
  • and how they’ll be assessed in terms of their performance.

Choose the most suitable successor. It helps to set up a task team to handle this, which may include the current executive manager, the family, and an external advisory board. This team needs to drive the succession planning process forward.

  • Plot the timeline for the start of the hiring process, the goals in-between, and the final transfer of management.
  • Identify the current – and future – business needs the person must meet. Outline the skills (leadership and technical) they need.

Decide on the business’ future form of enterprise. Should it be run as a trust, a company or close corporation? An estate planner and financial adviser can help with this decision.

Draw up a tight handover plan, clearly outlining the responsibilities of the retiring owner and the successor, throughout every phase of the handover. This helps avoid any conflict and makes for a smoother transition.

Get all the documents done, for example, any buy-and-sell agreements, cooperative agreements, etc. It’s important to make sure wills are executable and that there’s adequate liquidity in the estate. Again, an estate planner can advise.

Ensure the organisational structure is solid, including the reporting channels and how all family members will be involved. Each person needs to have their role and responsibilities clearly defined.

Bezuidenhout concludes, “Succession planning can be very emotive and difficult to talk about. It really helps to get a mediator – like an estate planner or financial planner – involved, to offer expertise and help facilitate tougher conversations.

“It’s important to frame the conversation as a conduit to bolster the resilience of the business – and the family, now and in the future. Ultimately, it’s about ensuring the family’s vision and values are deeply entrenched for many, many years to come.”

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