Plan your exit
How to prepare your business for the next generation of leadership.
Recently, as I was leafing through a women’s magazine, I came across an article in which the editor was explaining to her readers the secret to a successful dinner date. She summarised it thus “plan your exit” and elaborated as follows: you must come to the evening armed with a suitable excuse for a smooth exit, so that if your dinner companion turns out to be a bore - or worse - you can make a swift departure having prepared the terrain already (“I really can’t stay long as my elderly mother needs me to help her with her medicine tonight”).
If, on the other hand, your dating companion turns out as enchanting as you hoped he/she would be then you have the discretion to revisit your excuse and your “elderly mother” can miraculously recover from her mysterious illness during the course of dinner leaving you to enjoy the evening as you please. When it comes to business succession, the same advice can be given to business owners: plan your exit and do so as soon as you can or the consequences for your business and on your family may be dire.
Easier said than done
This, of course, is easier said than done. In practice, you will find entrepreneurs burying their heads in the sand, sometimes, for as long as they possibly can before they are ready to address this issue. Indeed, it is not easy coming to terms with your own mortality and the realisation that the business that you have created may continue without you. Entrepreneurs normally associate strongly with the business that they have founded. The idea of no longer being a part of it, either through retirement, death or accident (of which more later) can be hard to swallow, in particular for individuals who are keen on retaining control.
Identifying a suitable successor
This process presents its own challenges, often requiring the business owner to delve into an “emotionally charged zone” of family dynamics, which hitherto he may have been unaware of or perhaps even tried to ignore. Ideally, the successor selection process will involve the founder and the participation of all relevant family members. This is essential if the plan is to be implemented successfully. In theory, everybody’s interest (business owner, family members and, to the extent they are involved, management) should be aligned and in some families choosing a successor is relatively straightforward.
In real life, however, emotions play an important role and family dynamics – both overt and covert – should not be underestimated. You may find that the cake that one sibling did not share with his younger brother at the latter’s birthday party is the biggest hurdle you face in getting everybody’s agreement to a certain course of action. Advisors helping families navigate the selection process should be attuned to these dynamics, meeting with each family member on a regular basis, getting them to participate in the process so that even if there are disagreements a consensus may be built around a certain decision. Whilst in most cases, a successor will be identified from within the family and groomed accordingly, in some cases choosing an outsider, a member of management, for example, may be the only suitable option. The next generation may not be interested in carrying on the family tradition or they may not be talented enough. This, no matter how uncomfortable for the business owner, must be acknowledged and accepted.
The two objectives
What is paramount is that the twin goals of business succession are achieved: choosing an apt successor to the family business and ensuring the financial well-being of the family. The importance of getting it right cannot be overstated. With increasing globalisation, leading a family-owned business has never been harder. The choice of a successor is therefore crucial if the business and the family are to thrive.
The early bird...
Business succession is challenging, yet it is essential that it be addressed as early as possible and an “after-me” plan formulated when the entrepreneur is fit and able. This “after-me” plan should not only include a step by step road map to the entrepreneur retiring from the business, choosing and grooming a successor either from within or outside the family but also include an emergency plan for a “catastrophe scenario” to cover sudden death, accident or disability. This will ensure families have a fall back plan in case disaster strikes. It will give the entrepreneur peace of mind, leaving him to continue building a successful business. It will also help ensure that the old Chinese adage “Fu bu guo san dai” (wealth never survives three generation) will never come to pass.
What matters to you?
Life, business, investments, aspirations - what matters to you matters to us. This article is part of our 'What matters to you?' series, in which we have a close look at what lies close to your heart and how wealth planning may help you to achieve your objectives.