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Like many entrepreneurs, you may want to hand over the reins to someone you trust – quite possibly your children. To ensure your business survives and even flourishes after transferring it to the next generation, a well-considered succession plan – preceded by a family business strategy – is essential, says Jannie Rossouw, head: Sanlam Business Market.

“Not many family businesses have proper succession plans in place. It means having conversations most people would rather avoid, involving family emotions and expectations, and the one subject more likely than any other to cause family rifts – money. Approached in the right way, however, a detailed succession plan will not only ensure the future of your business, but also that of your family,” says Rossouw.

To start with, it is advisable to draw up a separate strategy document outlining your family’s shared business vision and values. “This document should set out how you as a family do business, including the ethical standards everyone is expected to uphold. This is especially important should outsiders – such as your children’s spouses – join the business,” he says.

The succession plan will spell out what will happen to the business after you retire, or die. Who will own the business? And who will run it? Rossouw t says you need to consider the following:

  • The involvement of the whole family. The plan must be co-created and agreed to by everyone. You can’t assume your children will think like you do, and you may be unaware of their individual plans, expectations or even potential sibling rivalry.
  • The structure of the plan. Depending on your family situation, there are any number of options you can consider. For example, you can either bequeath the business to one or more of your children, or sell it to them. If you don’t think they have the necessary skills to take over from you, you can transfer the business to a family trust and appoint an outside manager. After discussing the options with your family, you may even decide family ownership succession is not feasible, and sell the business on the open market.
  • Management and ownership. Your planning should include a strategy for training your successor(s) to manage the business long before you transfer ownership. If the new managers and the owners of the business are not the same people, you should also consider how they will work together. And if one of your children takes over the day-to-day management, it may lead to conflict if others who are shareholders have conflicting ideas about how the business should be run. If ownership is to be transferred to only one child, decide how your other children will be compensated.
  • Your own retirement plans. Have you made provision for your retirement separately from the business, or are you expecting it to financially support your retirement? If your children are not only taking over the business, but are also expected to look after you from business proceeds, this may cause resentment. It may be better in this case to sell the business to them so you have your own retirement capital. “If you think it is risky running a business, try living off a business in your old age that your children are running,” says Rossouw.

“It should be clear that drawing up a succession plan is a very complex process. There is a multitude of facts and scenarios to consider. Also, although it is a strategy document, it will be supported by a number of legal documents, including your will and perhaps a trust deed. So besides involving your family, it is advisable to consult a team of experts beforehand, including your financial adviser, your accountant and your lawyer. And it needs to be updated on a regular basis to ensure it is still relevant to changing circumstances,” he concludes.

Side-Bar: Top Tips from a Successful Family Business Owner

Modimolle-based Ina Lessing owns a business producing 166 000 bottles of fruit preserves and canned products to the value of R4.2 million per year, which are distributed all over South Africa. In May this year, she was crowned as the Sanlam/ Landbouweekblad Agricultural Woman Entrepreneur of the Year.

Lessing has five children, all of whom (including their spouses) are involved in some way in her business. With her own retirement in mind, she decided earlier this year to draw up a succession plan. “When they were growing up, my children were ashamed of my preserves,” she quips, “but today they are proud of what I’ve achieved. I was at one point thinking of selling my venture, but since the children are all now involved in various aspects of the business – from handling the marketing and distribution, to doing the books or just helping out now and again – I realised I have created a true family business that is a legacy to my children.”

Lessing has the following tips for drawing up a succession plan:

  • Consult independent professionals before deciding on the details of your plan. “We would not have had the skills or the knowledge to put together our own plan. It is far too complex and there were many questions we would never have thought about asking,” she says.
  • Involve every member of the family. “Each of my children knows exactly what their role is in the business. They also know that they are all dependent on each other and how they need to work together to ensure its continued success.”
  • Draw up a separate document together, which sets out the shared vision of the family for the business. “In this way, everyone knows what is expected of them – putting your business values down on paper will ensure each member remains accountable to both the business and the family as a whole,” Lessing concludes.
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