Figures by the Family Firm Institute reveal that approximately 30% of family businesses survive into the second generation, 12% into the third generation and only 3% into the fourth generation and beyond.
According to Christo Botes, executive director of Business Partners Limited (BUSINESS/PARTNERS), the survival of a family business hinges on a sound succession plan, and, more often than not, on the extent to which the next generation is trained and prepared for running the business. He says that, worryingly, many South African businesses aren’t taking this approach.
Botes points to PwC’s Family Business Survey for South Africa 2016/17 which shows that while 35% of family-run businesses have an idea of a succession plan for their business, only 17% have formal, documented plans in place. “Succession planning ensures business continuity by providing a long-term vision for the business. Without it, the transition from one generation to the next jeopardises all the hard work put into growing the business.”
He says that the next generation also needs to be prepared to take over as early as possible, and not just at the handover of the business. “There is no guarantee that, having grown up in a family business, the children of a successful pioneering parent will naturally possess business prowess. This is why entrepreneurial talent within a family needs to be identified and nurtured from an early age, in order to give the child the best possible chance of success in running a business.”
Education, training and years of experience and hard work is just as necessary for the next generation to take over a family business as it is for any professional manager who wants to become the CEO of a company, says Botes. “Mentorship is a crucial part of this preparation and takes many forms.”
Botes says that the first form of mentorship is taught at home. “Business owners play a critical role in passing on their values, principles and general business approach to the next generation. By children simply listening to their parents and discussing challenges, they can assimilate the way that their parents exploit opportunities and solve business problems.”
Botes adds that next generation should never be under the assumption that it is their birth right to take over the business one day, irrespective of their level of talent, skills and commitment. “Crucial professional development must take place. This will also equip them with the skills, insights and work experience that can prove invaluable for the survival of the business in a changing world.
“Mentorship can play a key role during this process as mentors can come in many forms, such as the managers who oversee their work in the early stages of their career, experts that they meet during their studies, or outside advisors appointed specifically to prepare them for the next generation of leadership.”
Most importantly, succession planning ascertains if the heir to the business is in fact competent for the role. “There are many alternative roles, such as passive shareholding or non-executive directorships that family members can instead play, and mentors can help to cultivate self-knowledge among the heirs, as well as mediate a dignified exit for family members from the management of the business, if required,” concludes Botes.