“What happens to the business in the event the enterprising owner shifts focus to a new venture, dies, is injured or retires? Is there a competent deputy who can take the reins immediately and hit the ground running?”
Large corporations often have successions plans, usually executed by their board of directors, to prevent business interruptions or disruptions resulting from the loss of a founding entrepreneur or key executive to another venture, retirement, illness or death.
Ironically, many small and medium-sized enterprises do not bother to put such contingency plans in place, even though they face greater irreparable damage when there is a leadership vacuum.
Plan Ahead Today
In Ghana, as with many West African countries, where many people do not prioritize planning for their estates, the death of an SME owner often leads to management disputes, family squabbles over succession, and legal wrangling. These and other reasons lead to business failure in the absence of a succession plan.
For example, for SMEs, particularly privately held, family-run enterprises, business operations revolve around the vision of a single individual or few individuals, typically an enterprising owner or family patriarch who built the business from the ground up. Due to their strong, direct relationships with key investors, partners and customers, the long-term viability of the company rests solely with this individual.
What happens to the business in the event the enterprising owner shifts focus to a new venture, dies, is injured or retires? Is there a competent deputy who can take the reins immediately and hit the ground running? How can the business owner ensure the successful transfer of leadership? Will the succeeding management be able to command the loyalty of all stakeholders? Also, if no one exists to take the reins in the absence of an owner, is there an exit strategy for the business and how and who would implement it?
These critical questions can best be articulated in a comprehensive succession plan.
Choosing a Successor
Transferring control of a business to a successor is sometimes complicated. As such, it is crucial that the shareholders begin this process years in advance of a planned exit from the company.
Ideally, the SME owner should consider a successor who already understands the business model and brand. If such a candidate is not available internally, a formal process to search externally should be initiated in earnest. If the business is ran by a board, a committee should be organized to field potential candidates.
In a family-run business, selecting a successor means choosing between children or close relatives. That is both an opportunity and a challenge. It is important to carefully select the family member or members with the proper skills to manage the business. The successor must be technically competent, and also have the leadership qualities needed to fulfill the mission of the business.
An SME owner should not assume their children share the same dreams and aspirations for the business, and want to take over. It is okay to select a family member who has a different skill set as long as their ambitions align with the company’s.
In the succession plan, clearly define the role of the successor, the company’s mission, and financial details, particularly how equity in the business will be divided. Make sure the would-be successor understands and is fully on board with this plan.
Communicating the Plan
Once a successor is identified, it is imperative that the SME owner first communicates the plan to those in key positions within the organization. It is important to share the timeframe for transition with staff to alleviate the potential for panic and insecurity.
During the transition period, consider introducing the successor to important clients through face-to-face meetings. This is a great way to get them comfortable with the successor and build a personal relationship with this person.
Building Support Staff
It is important to not only groom a successor long before stepping down from the helm but also build a solid team to support and help the successor you select.
During the transition period, it is advisable to work with the chosen successor to identify key employees who will also be promoted to management positions or assigned new responsibilities. These are individuals who are on board with the would-be successor, have a vested interest in the success of the company, and can be trusted to manage various aspects of the business with minimal supervision.
Allow the successor to announce the management changes at the end of the transition, as a sign to all stakeholders that he or she is in control and is empowered to make important decisions.
Putting Finances in Order
A good succession plan should include an analysis of current finances and a five-to-10 year financial plan for the company. Whatever the financial health of the company is at the time of transition, it is critical for the successor to have the accurate picture of the company’s finances.
If downsizing or divestiture are being considered, these options must be articulated in the succession plan so the incoming management can weigh them and act accordingly.
Ultimately, the best legacy an SME owner can leave a successor is honesty and transparency.