Why is business succession a hot topic?

 

74%
of Czech Family business do not have a succession plan.

70% 
of those businesses will fail, and

85%
of those families will experience ‘serious family conflict’

For well run and successful businesses throughout the world, having a up to date business succession plan is a key part of their strategic planning process – as important, perhaps even more important, than plans for business development, marketing and new products.  The best business owners are aware of the key statistic; that 70% of businesses do not survive into the second generation.

In other words, if you fail to implement a business succession plan, then your business will probably fail. So the consequences of a bad business succession strategy are far worse than a bad marketing strategy; put simply, your factories will close and your assets will be sold at ‘fire sale’ prices, your employees will lose their jobs and the enterprise you have spent so many years building and developing will be gone – along with a good part of your accumulated family wealth.

Successful business owners abroad know that, but at this stage it seems that most Czech entrepreneurs do not.  Only 26% have even thought about a plan, let alone implemented one.  That’s hardly surprising. Until the beginning of last year, the Czech legal system made effective business planning very difficult, if not impossible. However since then business owners have had most of the same options available to them as their offshore compatriots.

Eva Polakova of Svěřenské fondy a trusty speaking at the Zivnostnik Roku competition in Liberec

 

Like all good business plans, your succession plan needs to be written, communicated well to all those involved and updated regularly.

It’s not that difficult

The first, and by far the most critical step is simply simply to think.  Of course, the big question is what do you want to happen to your business after you are no longer able, or no longer want to run it.

This question gives rise to a lot of ‘secondary’ questions including:

• When do I want to retire?
• Do I want to retire gradually?
• After I retire, who should own my business,?
• Who should control it?  Should it be sold?
• If it is to be sold, what happens if I am over by a bus before it has been sold?
• If I want my children to take control of the business, are they ready?
• If they are not, what educational and experience do they need to be ready?
• What happens if I die before they are ready?
• What do I do if I want control to go to just one of my children?
• How can I compensate the others?
• Who should then be the owners of the business?
• What about management?  What should be their role in the company?
• Should they receive a shareholding? If so, how is this to be paid for?
• What steps do I need to take to develop management so they are ready?
• Are there any ‘ground rules’ I would like to set for future management of the company?
• Do I want the business to stay in the family in the long term?

Once you have considered these issues, then in most cases it makes sense to have a preliminary  talk to your family and to management – at the very least to make sure that, if you plan to pass control to them, that they actually want it. Once of the key objectives of a good succession plan is to avoid family conflict.  According to recent statistics from the US, around 85% of unplanned business successions result in ‘serious family conflict’  Once of the best ways to avoid conflict is obviously to communicate well.  But there will of course be some situations where communication isn’t going to help – where those involved are completely at odds with the plan – a good example would be an incompetent or irresponsible child who nevertheless believes that they should inherit control of the family firm.

By now, the general concept should be clear in your mind, so the next step, the third step, is to contact us.  Since the law changes in 2014, it is now almost always possible for us to give effect to your plans, whatever they are.  We can also usually make suggestions that will help you improve and fine tune your plan

There are two important points to know.  First, whatever plan you decide on does not have to mean any practical change to the way the business runs now – and that you will always keep full control over everything for as long as you want it,  Second, there is no reason why ownership and control of your business needs to stay in the same hands.  You can now, quite easily, pass ownership to your family, but leave control in your own hands or in the hands of whoever else you choose.

The final step is implementation. In most cases this will require some legal documents, and some communication with your family and staff so that thy understand and buy into your plan.

Don’t forget to review and refresh your plan regularly. We recommend that this should be done at least annually or when there is any significant change to the business or within your family.