Estate Planning for Business

“Never put your business in the hands of one person or a select few. People leave, People die; People forget” ~ Liz Weber

Let us examine the following:

Why do businesses fail in Nigeria?

What can you do to protect your business?

Did you know that family businesses control a significant portion of Africa's economy? And while family businesses are quite common across the continent, only a handful of them enjoy longevity. The survival rate of most African family businesses beyond the founder's generation is extremely low. i.e. Nigerian Business Mogul MKO Abiola who at one time was the richest man in Africa, successfully built one of Nigeria’s biggest business empires consisting of an airline, chain of newspapers, extensive real estate, fisheries and retail. Yet after his death in 1998, his empire crumbled and none exists today.... and that is just saddening.... to imagine that a man will labour that hard yet in just a couple of years after it was as if he never did anything?

Did you know, KPMG in its Family Business Barometer report stated that only 20% of family businesses in Nigeria have planned for leadership succession and only 3% have a laid down strategy for wealth transfer? Are you one of those?

Now let’s explore why businesses fail in Nigeria

  • No succession planning
  • Succession crisis
  • Polygamous family
  • Intestate succession
  • Misfit in choosing a successor

But, what then is Business Succession Planning? - It's a strategy for identifying and developing future leaders at your company — at all levels. Succession Plans are used to address the inevitable changes that occur when employees resign, retire, are fired, get sick, or die. They make sure the business is prepared for all contingencies by identifying and training high-potential workers for advancement into key roles.

This is a critical but often overlooked process for companies, who desire for operations to continue to run smoothly. It is important to note that this is a manageable event that need not become a major organizational crisis. The end result is a well-oiled machine with a multitude of favourable outcomes, not least of which is staff retention.

Key Questions to ask when building a Business

  • In building a business, ask will your business be viable into the next generation? If so, do family members not currently in the business intend to join the business and what is their vision? How do their individual visions align with the current vision of the business and other family members interested in the business as well?
  • Should the business be sold to provide liquidity for future financial security?
  • Who will take over the running of the business if it is not sold and are they properly qualified and appropriately trained to do so? If not, can they be and how so?

How then do you initiate the process for Succession Planning?

  • Be proactive with Succession Planning - take the time to find and prepare a promising candidate for a leadership position even if you don’t think you will need a replacement now. Preparing someone to assume an important role creates an invaluable safety net.
  • Keep an open mind.
  • While the obvious successor may be the second in command, don’t disregard other promising employees. Look for people who best display the skills necessary to thrive in higher positions regardless of their current title.
  • Make the vision known.
  • Include potential managers in strategy conversations to help them acquire planning and leadership skills as well as a broad vision of the organization and its objectives. Consider sharing your Succession Plan with Human Resources and your Board of Directors.
  • Offer regular feedback to protégés.
  • When someone uses well-honed presentation skills or outperforms on a project, make note of it. Keep track of these achievements in a top-performer file so you have something to reference the next time a management position opens. Diligently chronicling topics like strong work ethics and achievement will also come in handy during performance reviews.
  • Provide Training to Peak performers.
  • As you identify your top performers, offer mentorship relationships, job shadowing and training, which are true articles of value to help them develop new skills and refine existing ones. Remember that good leaders not only need technical acumen but also vibrant interpersonal skills, including outstanding verbal and written communication abilities, as well as tact and diplomacy.
  • Do a trial run of your Succession Plan
  • A vacation is a great time to have a potential Successor step in to assume some responsibilities. The employee will gain experience while you learn how prepared the person is to take on a bigger role.
  • Use your plan to develop a hiring strategy
  • Once you’ve identified internal employees as Successors for key roles in your organization, take note of any talent gaps. In this way, the Succession Planning process can help you identify where to focus your recruiting efforts.

Estate Planning for SMEs or Family Owned Businesses.

It is important to make sure your Succession Plan is realistic and achievable. You may want to discuss this with your Estate Planner, Business Adviser or Accountant. While there are no set rules, however you may want to include details of:

  • The successor; family member, business partner, any other.
  • Succession type; partial or full succession.
  • Time frame.
  • Key personnel changes and skill retention strategies.
  • Restrictions.
  • Legal considerations; buy-sell agreement, reference to a will/ trust arrangement.
  • Risk management.
  • Communication strategy.
  • Financial considerations; retirement income, sale price, tax implication etc.

Keeping The Business in The Family

If you decide to leave your business to a family member consider the legal obligations, as well as the impact on family relationships. It is advisable to involve an Estate Planning specialist and a Business adviser in discussions with family members to avoid disputes relating to inheritance, ownership and management.

Buy – Sell Agreements

A buy-sell agreement is a legally binding agreement between partners or co-owners outlining what will happen if an owner dies, is forced or chooses to leave. The agreement will determine the following as instructed by the Settlor (the initiator of the Trust Deed):

  • Who can buy the departing owner’s share of the business.
  • The circumstances that will and should allow the share of the business to be sold, such as retirement, disability, absence from the business or death.
  • The price to be paid for the share of the business.

A good succession plan can secure a business owner's legacy and their retirement

Keeping The Business in The Family

If you decide to leave your business to a family member consider the legal obligations, as well as the impact on family relationships. It is advisable to involve an Estate Planning specialist and a Business adviser in discussions with family members to avoid disputes relating to inheritance, ownership and management.

Benefits of Having a Business Succession Plan

  • Succession Planning is a process for identifying and developing new leaders who can replace old leaders when they leave, retire or die. ... In business, succession planning entails developing internal people with the potential to fill key business leadership positions in the company.
  • Can your workers answer the question, "What is the Succession plan at your company?" They can, if you've shared it. And you can, if you’ve built one for your accounting department or organization.
  • Effective Succession Planning has advantages for your staff members, by giving them a self-esteem boost and an answer to the question of what’s next for them. For managers and employers, it’s a proactive measure that gives them an alignment of talent development with the company’s future leadership needs.

Consequences of Not Planning Ahead

Without consideration of a proper Plan which includes both a Succession Plan for the business as well as a well-structured Estate Plan, this could lead to serious financial and emotional turmoil that will and can affect your family / business.

The effects are far reaching beyond loss of jobs or family disruption or the loss of a sizeable legacy. When a profitable business folds up for lack of a proper Succession Plan and a detailed Trust deed that contains instructions on how and who to ensure the Business Plan is adhered to, employees are thrown into a mental and emotional state as to the sudden loss of job, pressure on how to be providers to their families, clients/customers whose fortunes are tied to such businesses, financial institutions who have made out financial facilities to augment the growth and profitability of such businesses, investors who will lose principal and interest on assumed investment, contribution to economy in terms of taxes and other statutory levies are drastically reduced, increase in unemployment pool, high rate of migration to other countries, the list is endless.

Other negative results of not having a proper Succession Plan include:

  • No clear direction for the business without a known leader
  • Loss of employee faith in company leadership for business to continue and employees to seek other opportunities for fear of uncertainty of business continuity and their personal job security.
  • Lack of leadership can create power struggles among middle management.
  • Family units are broken apart over disagreements. An example is a disagreement between family members with voting shares attempting to direct the business.
  • There is potential loss in value due to a key person deceased when surviving shareholders go to sell the business.

Proven Solutions To Protecting Family Businesses

  • Clear instructions on succession and asset sharing in forms of wills and trusts to safeguard the family and the business.
  • Founders to establish a trust to hold company stock for the benefit of family members

Have you made plans yet to secure your legacy? There is no time like the present to take the first steps into ensuring that what you labours will not be in vain.

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