Succeeding and Transcending Your Parents

Family business succession planning should be a priority for every company that wants to pass on its business to the next generation.

In a survey conducted by KPMG and presented in its report: “Nigerian Family Business Barometer”, KPMG, says only 20 percent of Nigerian businesses plan for leadership succession and only a negligible 3 percent have defined a clear path and direction for wealth transfer.

As we all know, sooner or later everyone must retire and for a family owned business, retirement is not just a matter of deciding that I am now too old and a policy has been put in place that I need to stop working. Many business owners continue to work long past the age of retirement because structures, clearly defined visions, growth parameters and corporate governance have not been defined nor implemented.

When many Founders of very successful family owned businesses in Nigeria approach retirement, the knotty issue of what happens to the business becomes a pressing concern. Key questions like ownership transfer, day-to-day running, competence (technical and psychological) to run the business etc become contentious matters.

To ensure that your business transcends the Founder, it is important to put a family business succession plan in place to manage these issues in order to ensure a smooth transition between generations. Doing this proactively ensures that the emotional complications that come with discussing aging, death, relationships, family discord, partnerships, taxes, regulation are constructively addressed.

Below are some family business succession tips from Susan Ward with additions from me:

Start business succession planning early

She says, “five years in advance is good. Ten years in advance is better. Many business advisers tell budding entrepreneurs to build an exit strategy right into their business plan. The point is, the longer you get to spend on succession planning, the smoother the transition process is likely to be.

Involve your family in business succession planning discussions

Making your own succession plan and then announcing it is the surest way to sow family discord. "Opening a dialogue among family members is the best way to begin the process of a successful succession plan - one where close attention is paid to the personal feelings, ambitions and goals of everyone concerned" according to Grant Thorton.

Look at your family realistically and plan accordingly

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. Examine the strengths of all possible successors as objectively as possible and think about what's best for the business.

Get over the idea that everyone has to have an equal share

While this is a nice idea in theory, it may not be in the best interests of your business. Remember that management and ownership are separate business succession planning issues. It may be fairer for the successor(s) you have chosen to run the business to have a larger share of business ownership than family members not active in the business. Another alternative is to use voting and non-voting shares so that only some of the family shareholders can make decisions on company policy. Or it may be best to transfer both management and ownership to your chosen successor and make other financial arrangements to benefit your other children.

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 planning will have a much better chance of success if you work with your successor(s) for a year or two 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.

Get outside help with your business succession planning

Lawyers, accountants, financial advisors - 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”.

Put in place a good corporate governance system

Ensure that you implement a corporate governance system before you retire and have tested that it works is paramount. Professional Services firms can review corporate governance structures and give an opinion on the strength of your structure. Having a good structure in place can make or break your business when you retire and your successors start to run the business.

Susan Ward says, “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”.

The above statement cannot be overemphasized. We continue to see that family businesses do not seem to thrive in Nigeria. Families need to consciously ensure that they work on ensuring that their businesses succeed and transcend one generation.

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Marie-Therese Phido, Chief Responsibility Officer, Elevato