Plan Your Business Succession

Last evening, I was watching the rerun of the recently released “The Intern” on one of the movie channels, wherein a young woman who meet success in a short span at a very young age finds herself incapable to manage the growing business singlehanded. However, she was reluctant to bring in a CEO to guide her run the show more smoothly attaching a lot of drama to it.

It is not just a story but infact an alarming truth. In India,  If you want to eat fruits of our sown tree you need to take good care of it and even nourish on time. Similarly, if you want to ensure that the business set up by you is successfully transferred to your next generation then it is necessary to plan for its succession on time. As per the recent survey of Family Business Survey, 2016 conducted by National Bureau of Economic Research Family Business Alliance 43% of family run firms do not have succession plan in place and only 12% carry on business till 3rd generation. Like everything business also needs fresh thoughts and different approach to do things. So, better plan for this transition on time.

Problem areas of succession planning in business

• Business is not just about profits or growth; it has deeply rooted values, culture and entrepreneurial style. The family run businesses usually face a road block when it has new generation talking about change, technology and resources.
• Lack of strategic thinking. The missing component mostly in any family run firms is the creation of strategic thinking. Thinking that is dedicated to long term. There is a lacuna for understanding the transition from current level and expected level of business growth. The perspective of growth is different for everyone.
• Overlapping of personal and professional lives makes succession planning difficult. Sometimes the domestic restraint overpowers the important succession decisions.
• Absence of rightful successor. It is quite possible that your family is not interested or incapacitated to run your business.
• Difficulty in delegating work and sharing the load. The more an individual grows a successful the lesser he trusts the younger generation working capacity.

Simple probable solution to plan successful business succession

• Develop a collective vision, goals and objectives of business.
• Make a simple list of skill set of all probable succession family members. Also, list out the probable areas of shortfall of skills. Try to do it with consensus of current management.
• Identify the potential threats in business and prepare the combats to face it. Once, you have identified the mechanism to face the threats, it is easier for the younger lot to plan their current situation.
• Bring in the fresh experience from outside. It is necessary to bring a third party in the family run set up to bring in the required professionalism. Although, it might take time to accept a stranger in business but it is the only way to scale and have a neutral approach to things.
• Start delegating roles in your presence so that work doesn't stop in your absence. Switch from a role of Active member to active Observer. Let there be mistakes in near term but in long run it would be improved.
• Prepare a written document expressing your idea of succession plan for all the family member.Discuss it with all the beneficiaries.

If your family is not interested in your business

• If none of your family member is interested is in continuing your business, it is best to either planning a sell out to a suitable competitor on your death or when you want to quit it. The proceeds can then be distributed in your estate planning.
• If you are keen to maintain your business name, even after your demise, you can plan to create trust to run it and appoint a suitable manager/ CEO to run it. Please ensure the person so appointed is young to outlive your age.
• If your spouse is dependent on your business income, it is best recommended to make them actively aware of the business working. If the spouse is incapacitated to run it after you, it is better to sell it and transfer all amounts to her.
• If multiple homes are dependent on the business,  please ensure you have planned well for the legal dues of your staff and labour. This would ensure co-operation from them as well as loyalty.

In case of minor children, a trust form of business ensures safeguarding of business till your children become adults.

Business is like your own baby, as you ensure your child gets the best, so should your business. Plan to grow it, expand it and on suitable let the legacy go to a more stable hand. It is wrong to let the once successful business die away in shambles. Plan for your succession and plan it soon.

Thanks and Regards
Team
Saarthi Financial Planner
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