Business owners beware: ignore succession planning at your peril

A recent newspaper article by Basil Leonard, from the Centre for Leadership Studies at Stellenbosch University Business School, once again put the need for carefully considered succession strategies under the spotlight.


In his article, Leonard cited resignations and death as two events that trigger the implementation of succession plans in a business. On a personal level, one could add divorce and disability to the list of triggers.


Professional advice

Succession planning or succession development is a feature of many large, well-established organisations. Crucially, however, this is often not the case in smaller, medium or family-run enterprises. Here, owners often wear several hats at once or are simply too busy running their businesses. As a result, they fail to plan or seek advice on succession issues from professionally qualified legal and financial advisers.


The well-worn saying ‘failing to plan is planning to fail’ is often trotted out in casual conversation. Surprisingly, few smaller businesses and individuals actually take steps to plan and prepare for succession properly.


Negative fall-out

Unfortunately, we often see the unpleasant consequences of poor succession planning. The problem is that trigger events such as death or disability set off emotional or physical responses that can make it difficult for key people to make wise decisions. This is why it is so important to deal with these issues well before they happen.


After all, it makes no sense to plunge stakeholders involved with a business into a state of confusion that could reduce revenues and even prevent the business from paying its debts. At a stroke, this could destroy everything the business and its people have worked so hard to achieve.


Minimising risks

Planning a seamless transition of responsibilities is essential to minimising operational disruption to a business while protecting its value and reputation. A shareholders’ agreement, memorandum of incorporation or other record of understanding (where applicable) that deals with succession issues thoroughly can help to achieve this continuity. Similarly, well considered, carefully crafted will and estate planning strategies go a long way towards minimising the personal risks associated with succession.


On a personal or professional level, we recommend that every business owner considers all risks linked to succession and implements measures to minimise them.


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