SUCCESSION PLANNING, KEY TO FAMILY BUSINESS SURVIVAL
The background issues
Succession planning is a process for identifying and developing new leaders who can replace founders of the business when they step down, retire or die. The issue is that business owners in Ghana and across Africa do not prepare the business successors while still in their prime. In a webinar held by OML Africa, for family-owned-business owners and founders, they were asked whether they had a succession plan in place and 95% of participants did not have a plan in place.
The presence and sustainable development of Small and Medium Enterprises (SMEs) is believed to contribute a greater impact on the economy as SMEs constitute a significant proportion of family-owned businesses in many countries, including Africa. Similarly, the expansion and development of SMEs over generations is crucial for economic activities, economic growth, and wealth creation. They are, indeed, "the backbone" of the economy of many countries, developed and developing countries alike (Abdullah, 2011).
Why a succession plan is important?
In African countries, SMEs account for a significant share of production, employment, and income generation, and are therefore directly connected to poverty alleviation (World Bank, 2002). It is therefore essential for business owners to prepare their successors before they exit, retire or die. SME founders in Ghana for example have not been surviving to the second, third or fourth generations after retirement or death of the first generation of entrepreneurs.
In Africa, very few families owned businesses in Nigeria, Kenya, South Africa, Tanzania, Uganda, Morocco, and Ivory Coast have been able to survive to as far as the third generation. There are no Ghanaian SME business owners on the list. Research has also shown that the owners who have a low level of education die with their businesses because they rarely prepare their successors. African SME owners need to prepare an exit strategy with the right business successors in time to ensure that their businesses remain sustainable when they step down, retire or die.
The guide to succession planning for family- owned businesses
In light of the acknowledged importance of SME owners, there is a need to promote their survival and continuity. Normally a lot of efforts to support SMEs are directed to business start-ups and subsequent growth of the firm but little is done to assist owners at the final stage of the ownership life cycle (Mnemai, 2013). However, most SMEs, especially in developing countries, face challenges of continuity after their establishment.
It is estimated that about 70 percent of SMEs in Africa collapse within the first five years of establishment (Mazrui, 2012). One of the major problems that contribute to a lack of continuity and growth of SMEs is inadequate succession planning (Mori, 2014) and other factors such as buy-in from the next generation. In recent times the next generation is not always as passionate about the businesses of the first generation entrepreneur. The Inability of the Founder to identify future talent needs coupled with a lack of succession planning tools also affects succession planning.
So what is the solution?
We recommend the following succession planning guide to Founders of family-owned businesses:
Establish a vision for your business
Re-energize your business
Align your values
Choose a successor who is best for the business, it doesn't have to be the firstborn or the boy child if they are not suitable.
Set clear expectations for the chosen successor.
Create a strategic plan (covering the next 20 years and Include company goals covering a minimum of five years programs, subject to reviews and amendments as required).
Determine the leadership requirements (strengths/competencies). What kind of leader do you need for your business in the future?
Create competency-based selection criteria (who among your children/family is right for the leadership position?).
Identify learning gaps and timing for the development of the successor.
Create and implement a custom development plan for the successor.
Involve family members who will make future leadership decisions and empower them and allow them to make mistakes.
Consider a term of office and put everything in writing and make the successor sign it.
Establish metrics to measure performance (measure leadership skills, people skills, technical skills, and results).
Measure and track progress.
In conclusion, you may be asking when is the best time to start succession planning, the answer is now, start immediately, plan succession early to ensure you secure your legacy beyond your retirement or death. Get support from experts you don’t have to do it alone but you do have to do it.
Contact us at OML Africa to find out how we can help you develop and implement your succession planning agenda as well as support your business with effective people support.
Chacha Magasi (2016). Factors Influencing Business Succession Planning among SMEs in Tanzania, European Journal of Business and Managementwww.iiste.org ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)Vol.8, No.3, 2016
Moha Asri Abdullah, Z. A. (2011). Family-Owned Businesses: Towards a Model of Succession Planning in Malaysia. International Review of Business Research Papers, 7 (1), 251-264.
Mori, T. (2014). Strategic Planning: A Management Contrivance for Effective Performance of SMEs Performance in Tanzania? A survey of Selected Firms in Ilala Municipality. European Journal of Business Management, 6 (39), 345-353.
World Bank report 2002.
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