Succession planning is a necessity

Passing a family business is a long-term process.

(Source: SME)

Even though modern technologies are penetrating all parts of life and even taking over jobs once done by people, most factors undermining long-term development and success still depend on human talent. Making and official implementation of decisions can  propel a company for decades, and succession planning is a key part of the strategic planning process that is often overlooked.

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Successful succession follows certain rules and it depends on several circumstances. International surveys find that just 30 percent of family businesses survive into the second generation and only 10-15 percent manage to transfer a business to the third generation. Respondents cite failed succession planning or disinterest of the next generation in the existing business as reasons.

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Echelon of activities and steps

The owner of a family business has two principal possibilities for securing a successor. They either have children or a member of a wider family or must identify a successor from outside the family. Both possibilities have advantages as well as disadvantages.

In the case of a direct offspring, the advantages are the continuity of the business, linking up to the same values, knowledge of internal relations, bigger motivation to develop the family business and thus also the family’s assets. But it may happen that children are not interested in the family business, have different career plans or simply are not suited for doing business. Some founders of companies admit these things only with difficulties, but a sober evaluation of the real situation can help prevent following conflict or problems.

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Since transition to another generation is a demanding and long-lasting process, it is necessary to start dealing with it early and in an ideal case also plan it formally. It is worth preparing several alternatives.

Entrepreneurs only rarely realise that the process of succession starts already when their children are small or of school age. Already at that time parents can anchor them in the values that the family cherishes. Children watch their parents or grandparents when doing business and see that such effort requires persistence, time and energy. During their studies they can help in the family business, obtain their first working experience and see how the individual parts of the business work. Such part-time work can gradually transform into a full-time job, while it is ideal that the offspring works in various departments and advances from lower positions higher up. Some owners of companies make a mistake when they install their children directly into managerial positions without considering whether they have qualities for such positions. In such cases, they expose their children to tremendous pressure from both themselves and other employees.

If a successor gains a proper overview of the company and masters also managerial positions, he or she can gradually become a partner of the founder and participate in strategic decisions. This is the phase in which it can be assessed whether he or she, in the company as well as outside of it, has managed to build up an authority and respect and whether he or she is prepared to take over management and responsibility for the company. During this whole process the role of the founder within the founder-successor relation changes, too. The role of the founder can gradually change from the director and the exclusive leader into a partner or he or she can completely withdraw from everyday executive functions.

A well-managed succession process should secure the company stability and continuity during the transfer to the next generation. Of course, each case is individual when family background, the field of business and situation on the market matters. Clear and timely communication over the process towards employees, clients and other partners outside company helps. Respectable relations in the family, mutual trust and support from other family members, as well as clear and trouble-free ownership relations have a positive influence. As is the case during any financial or legal issues, in cases of succession it is possible to consult with family, friends or consultancy companies.

How are things Slovakia?

As many as 82 percent of medium-sized companies in Slovakia are family businesses, and many successful companies have grown up here during 25 years of a market economy. Today, many entrepreneurs or business families that started doing business in the 1990s are facing the decision of what to do next with their own company and are solving the task of transiting into the next generation. In some companies this has been already happening, the process advances continually and successors are participating in management. In some individual cases they have already taken over the business.

In spite of this, there is still a large group of entrepreneurs who underrate the process of the succession planning and start dealing with it only at the last minute. More and more of them realise that with timely and proper preparation they can avoid unpleasant or even complicated situations. They are also better prepared to deal with unexpected events, like the sudden death of an owner or declining health, that can occur without an adequately prepared successor. 

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