Succession planning is important for family businesses, small, medium and large businesses, very closed businesses, privately owned businesses and with a significant controlling interest in listed companies. Whatever your type of business, the succession is fundamental in determining the value of capital, what is worth, the market price of your business, and therefore your wealth and that of your family.
We have condensed our findings into the Eight Principles of Succession that are meant to be common sense, practical and a guide to how you should see and carry out your succession process:
The first principle is about having your head in the right place. If you believe that the succession is about aging, getting off, submitting, giving up, not being able to contribute more or something like that, then you have lost the process of succession before you have started. A negative belief about what the succession represents will not allow you to get involved in the process in the way that is required to achieve the success you ultimately seek to achieve.
You and everyone who will support you in this process should see the succession as it is about evolution – Evolution of the Business. It’s about growth, opportunity and building the future while you’re here today. The objective is for the incumbent team to assume the responsibility of protecting the value of the business capital in the future, ensuring that the next team is capable, competent, experienced and able to take the business to the next level. Succession is the legacy that you leave behind.
Question: Do you have your head correctly?
Before embarking on any serious process, preparation is essential and the same applies to the process of succession. The current generation and the next generation have to prepare for the succession process since it takes time, commitment and motivation. For any critical change management program, a clear start is important. The process of succession needs a clear and committed beginning and not something that is taken and left according to the time allowed.
Establish a process, formalize it, do it on a calendar, monitor it and commit the necessary resources. Discuss the process openly, identify possible limitations and barriers before the start and eliminate as many as you can.
Question: Are you ready, is your process underway and have you committed the necessary resources including time?
The importance of setting your goals before you embark on the journey can not be overemphasized. Write the products / goals you want to achieve from the succession process. They must be clear and measurable, and more importantly, they must be attractive. If what you are looking for from the succession process is not attractive enough to involve all those who support the process then you will not allocate the time or resources required and will not have the energy to overcome the inevitable challenges that will arise.
The goals you set before you begin will instruct and guide all who participate in the process. They:
- They will provide the required motivation
- They will act as the beacon that guides their direction
- They will provide the basis for the agreement of intention and expectations of the participants
- They will allow the development of a clear path for the consecration of the process of succession
- They will serve as a point of reference against which to measure the success of the process
- They will provide the basis on which to focus external consultants on the products you are looking for.
Question: Have you articulated and clearly communicated a set of compelling goals?
Creating, sustaining and strengthening harmony through the process of succession is essential.
Harmony will be a support and means of delivery for your goals and will weaken and eliminate any barrier that may exist to achieve the initial goals you have established. Harmony with all involved in the process is what you should seek to achieve, but harmony does not mean giving in or being weak. Harmony requires that you communicate well and openly, that you listen (yes, that means to really listen and respect the positions of others), that you actively encourage the contribution and provide updates on the advances.
It also means that you maintain an absolute focus on achieving the initial goals set and on the continuity of the business and jobs for your employees. Harmony has to do with integrity and staying true to established results and, if this means that one of the participants will not reach his preferred product, then harmony requires that this be communicated clearly, explain why and maintain this position.
By involving the family and others related to the succession, you have to acknowledge that you are seeking certainty about the process and its future. They will want to have a sense of contribution and positive results where there are opportunities for individual growth.
Question: Is harmony the number one priority and do you have a communications plan to reach it?
The focus of the succession process is on ‘business continuity’ and ‘jobs for my employees’. No matter what your intention, whether it is selling, retaining or transferring the company, these goals do not change. Obtaining the best selling price is not the first thing to consider, rather it is the product of the focus on business continuity and continuity of work for employees.
The succession is about propping up and increasing the value of the company’s capital. This is achieved by providing certainty (the expression ‘the capital value lies in the certainty’ is very true), identifying the determinants of the value of the capital of a company and investing in them. When the determinants of capital are identified, the questions you have to ask yourself to make sure they are correctly identified are:
- They are ours?
- Can they be transferred?
- Are they durable?
- Do they provide greater value for the client and therefore more competitiveness?
The competitiveness of any business lies with its employees and the relationship with the leaders, therefore a focus on ‘continuity of work for my employees’ establishes the competitiveness of any company.
If you focus on the continuity of the business and jobs for your employees, you are in fact taking the focus to the determining factors of the capital value of your company, which in turn prop up the selling price in case you decide to sell one day.
Question: Is your absolute focus on business continuity and jobs for your employees?
It is never too early to start planning for succession, keeping in mind that succession is about business continuity, job maintenance for your employees and building the value of your company’s capital. These are results that you want to achieve as soon as you start thinking about starting a business and that will continue as long as that business exists.
Setting your goals before beginning the process of succession will allow you to develop a plan to achieve those goals. Part of this plan is to identify the steps to follow that will allow you to reach these goals more easily.
A key aspect of your planning is to establish and understand the financial requirements (the financial needs) of the combination of the company, the generation that may be leaving and the generation that may be entering. For an effective succession, the company must be able to meet these combined needs, or the expectations will have to be managed at a level that can be reached by the company.
The process of building the financial capacity of the company to meet the growing needs of the additional generations of the family takes time and must be understood, planned and acted upon, well in advance of these needs materializing.
Question: Are you planning well in advance to act and provide, and are these plans clearly articulated in the form of steps to follow?
If you have a family, one of the key challenges you will face is finding the right balance between participation, ownership and distribution of your wealth in the succession process, if some family members are, have been or may be in the future , involved in the company and others not, then this is a challenge that you will have to address to ensure the continuity of the company and harmony.
Deciding how your wealth will be allocated in the future and, at the same time, finding a product that will underpin and support family harmony over those decisions can be a real challenge. Its guiding principle is that equity does not mean being the same, but that you have to seek to be fair based on the historical and future contribution that family members have made, and are expected to make.
Involve early and openly all family members who may be impacted by your decision
Establish, explain and seek contributions for the bases / principles on which you want to make your decisions
Determine the impact that their decisions may have on individual family members and discuss them with them
Keep everyone informed and maintain an open dialogue
Make sure you get involved with and include your spouse / partner in these discussions (they will become one of your most important advisors)
Make a decision that is fair and clearly communicate your decision and justification.
Question: Have you started to consider what a fair allocation of wealth would be and started discussions with those who will be impacted?
Succession can be a complex process, with which you will need independent professional advice. Seek advice with time and continue to maintain that support during the process. Identify an advisor you trust and have relevant experience before beginning your probate process. Discuss openly with them their intentions, ideas, concerns and seek their guidance.
The first task is to establish, if you have not already done so, your initial goals and compelling reasons that accompany each goal. If you have already established them, then review them and discuss them with your advisor. These goals will be your ‘beacon of light’ so choose them carefully.
When looking for a consultant, select someone who is mature (not necessarily old) and who will focus on the business, family and personal outcomes you are looking for. The taxes, property planning, and legal advice that you will require come later and can be provided by specialist advisors in those areas. Starting with, for example, tax advice before you understand the results of the business you pursue can result in a tax-driven solution that may not align better with your goals.
Look wisely for your succession counselor and allow him to work with your current tax and legal advisors to achieve a mix of succession and knowledge of your company and your family.
Question: Have you selected and met with your succession counselor?