top of page
Search
  • Writer's pictureTsitsi Mutendi

SUCCESSION PLAN FOR FAMILY SMES



HOW TO ACHIEVE A SUCCESSFUL TRANSITION?

According to official statistics, 50% of companies in Zimbabwe do not survive the first five years of operation. Although this number is very high, there is another even more alarming: only 20% of small and medium-sized enterprises (SMEs) survive the change from the first to the second generation; of these, only 3% survive the change to the third generation.


An entrepreneur who manages to build a company that survives to be bequeathed is, by definition, successful; Most likely, he has had a clear business vision and an entrepreneurial style that has allowed him to bring the company to a successful conclusion, and he will also have collaborators who rely on it to bring home (frequently including family members), clients who require the products or services and, sometimes, to shareholders who have entrusted their resources to make the business work and who have the expectation of making a profit.


This is why a succession plan for SMEs is an excellent tool to reduce business mortality, especially in family businesses.


WHAT IS A SUCCESSION PLAN?

Succession is the process of change of command in a company, it usually implies a change in the property, that is, in the owner. Although this process is inevitable, in many cases, businessmen tend to postpone the decision to look for a successor, because they have the delusional thought that, by doing so, they lose leadership or early retirement.


However, a successful succession is a long process that can be planned for five or ten years, involving several stages and culminating in the transfer of management from one generation to another. The succession plan is the instrument in which the steps of this process are established with defined actions, estimated times, and a medium and long-term vision. Like any plan, it must be established in writing.


Parts of the plan

The first thing is to be clear about why a succession plan is required. Family businesses usually have three objectives:

• Survival and growth of the business: with the consequent preservation of sources of work and generation of value, not only for the family but for the entire economic environment.

• Transcendence of the culture: in addition to allowing the continuity of the culture established by the original leader, a succession plan gives security to employees, partners, customers, and suppliers, making it easier to manage the work environment at the time of succession and throughout the process.

• Preservation of family harmony: Possible conflicts are avoided by having an established and open plan that gives the family certainty.


The plan must contain the lines of action for three relevant aspects in the succession: preparing the company and the family, preparing the successor candidate or candidates, and preparing the activities of the current leader during the process and once he retires.


PREPARING THE COMPANY AND THE FAMILY

To properly prepare the company, three fundamental aspects must be considered for its proper functioning: management, governance, and ownership.


Regarding management, the first step is to professionalize the company. It is very important to have established a business plan in the medium and long term with the establishment of the mission, vision, and values ​​that the company has assumed, as well as the objectives. On this basis, the key result areas are defined and the people who can provide leadership and value in these areas are identified, which implies the establishment of a formal organization structure, spans of control, and division of labor by competencies.


It must be taken into account that for adequate professionalization the director must give up a margin in decision-making, most likely he will cease to be the center of the business and although he will maintain his leadership and influence, he will not be the key person.


Many SMEs have the employer as the only government, this represents a risk since the big decisions fall on one person. To prepare a proper succession it is necessary to establish a functional governing body; that is, a plural structure in which decisions that affect all areas of the company are made. A board of directors can be formed that will be in charge of ensuring the good direction of the company.


Said government facilitates the debate of relevant aspects (in a different way from the management that is usually handled in companies) without interfering with internal family problems. Thus, the opening is created for other professionals outside the company to participate.


The decisions made by the governing body set the guidelines to be followed by executives, including the CEO.


With regard to the succession plan, the governing body will support the businessman in making decisions about the candidates to succeed the current leader and occupy key positions, it will allow a much more robust business continuity than a company with a single decision maker, both for the knowledge generated and shared within the group, as well as for preventing the action routes to follow in case the leader suddenly leaves.


As for preparing the family, the businessman must consolidate and lead a family council, a body in which internal issues are discussed and which is in charge of safeguarding harmony among the members; This must establish the bases under which the family interacts with the company, what is valid and what is not.

Among other things, it prevents nepotism and intrusion of people related to the family, but who do not meet the professional skills or the passion to continue the business of their predecessors, necessary for the business.


On the other hand, the businessman must decide how the ownership of the company will be once he leaves it, that is, if there will be a single owner or if he will divide the shares among several people, and what role will the shareholders have in decision-making and government bodies. In particular, this point must be discussed openly with the family council to avoid quarrels and conflicts that break harmony and be established in writing.


PREPARE SUCCESSOR CANDIDATES

One of the most delicate points is deciding who will succeed the current leader. It must be considered that there may be several candidates, whether or not they belong to the family. It is convenient to have adequate training plans for them and provide that valuable people who are not successors can have attractive professional development within the company. In this regard, rather than looking for a single successor, it is a good idea to develop a management team that will carry the company forward.


Once possible candidates have been identified, their interests must be considered and a process of evaluation of personal, professional, and competency profiles must be carried out and plans for professional development, training, and delegation of responsibilities determined. The businessman must take the necessary time to share his knowledge and experience so that, when he retires, the company retains the value it has developed over the years.


Developing the skills and knowledge necessary to manage a company is a process that takes time, so start executing the succession plan before the time of change of command. A businessman must prepare his succession when he is in full power, not at the end of his professional life.


It is important to consider that the functions that an entrepreneur performs are diverse and their leadership style may be particular, so one must resist the temptation to look for a successor who does things in the same way as the entrepreneur. The main thing is to have the most appropriate person to lead the company and meet the objectives within the framework of established values.


By professionalizing the company, the entrepreneur is laying the foundations for an imperceptible succession. When the time comes, he will be able to choose his successor and present his reasons to the governing body. At the same time, the company will be able to offer a good development plan to other talented candidates and will lay the operating foundations for future succession, not only of the CEO but of all the key positions in the management team.


PREPARING THE CURRENT LEADER

The businessman is the main actor in the succession process, he is the one who makes the decision to professionalize the company and the one who has the vision of training his successor long before there is a change of command. He must consider that the preparation and execution of a succession plan is a fundamental part of his activities as director of the company.

In the process of training a successor, the leader will have active participation as a mentor, promoter, and motivator. Once he has decided who will succeed him, he must strengthen the leadership of that person and delegate the responsibilities of the general manager to him in an orderly and planned manner.


The Idea of ​​retirement can scare many people, as there is a belief that idleness and boredom will consume the rest of their days. In professionalized SMEs this may just be a myth; when the outgoing leader retires, he can continue with different activities, and given his experience he can be an excellent adviser or even the president of the governing body.


IF THERE IS NO SUCCESSOR IN THE FAMILY?

Although a company is an asset for the family, it is also a great source of wealth for society. If you do not have a successor in the family, you can look for him within the company, since ownership (who owns the shares) has been separated from management and government. Other options are to search for an available candidate in the job market, to enter into a strategic alliance with another company to run the business, or, ultimately, to sell the company’s property.


Succession is an inevitable process, in most cases, it occurs in an uncontrolled manner and due to force majeure; But if the businessman wants his legacy to last throughout the generations, he must anticipate and create the right conditions so that whoever takes charge is trained, knows the business in depth and can continue and increase the value of the company. . Even in the best of cases, in which a successful succession is achieved in the operational, administrative, commercial and financial aspects, the creative stamp of a member of the new generation who creates new directions and horizons will be needed.


1 view0 comments

Comments


bottom of page