While most entrepreneurs are constantly looking for ways to plan for their company’s future success by planning the business’ growth and expansion for example, not many plan for the future of their business beyond themselves – either to illness, incapacity, retirement or death.
Whatever the case may be, it is important to invest in a succession plan to find the right people to lead your company.
To ensure that a handover takes place in a planned and effective manner requires entrepreneurs to put together a realistic succession plan, says Diale Mokgojwa, senior manager of enterprise development at Standard Bank.
Mokgojwa says the succession plan can have far-reaching consequences on the business and that this requires owners make decisions as unemotionally and practically as possible.
“Developing a succession plan is vital; the sooner a need for a plan is recognised and the sooner it is accomplished, the easier it will be to concentrate on developing the value of the business, as you can rest assured that the business will remain intact in the future,” says Mokgojwa.
Here are four vital points to consider when developing a succession plan for your business, according to Makgojwa.
1. Identify a potential partner or partners to invest in the business. Makgojwa says this will enable the owner to ensure that the skills required to develop the business are brought onboard, and sustainability is ensured as the people concerned will have a stake in the business.
2. Consider a BEE partner who has the skills and who will also increase the future viability of the business by opening up markets in key sectors, particularly government.
3. Evaluate the skills and commitment of key staff members and offer them shares in the business with the promise that when the time comes for the owner to depart, they can use a management buyout to buy the majority, or all, of the owner’s shares.
4. Offer staff the buyout option, but stipulating that the process will be accomplished through their purchase of shares on an ongoing basis that could take several years to accomplish. This enables the owner to withdraw over a long period, or even retain a small equity holding in the business that can be used to generate annuity income, or be kept in a trust for family members.
“Although any of the above solutions will ensure that the business remains sustainable and well-managed into the future, it is wise to remember that relationships have to be firmly based if potential conflicts are to be avoided,” says Mr Mokgojwa.
Who to look for?
Mkgojwa says when preparing a succession plan, business owners should look to give over control to individuals with the following skills:
- A person who shares your values, entrepreneurial temperament and vision.
- Partners who bring specific skills and experience to the business.
- Someone who can bring capital, a business network and connections to the business.
- A person who has high personal standards and business ethics.
- Someone who you respect on a professional level, as you will then value their inputs.