Dear SME owners, have you got a business succession plan? Has your business gone digital? Will it still be relevant in the next 5 years?
We are living in a fast-paced world today where information is only a few clicks away. Economists globally agree that Southeast Asia is one of the world’s most economically vibrant and fastest-growing regions with great potential. However, there are a few shortcomings for the region’s businesses to rise up to this challenge.
According to The Family Business Survey 2016, about 31% of Malaysian family businesses do not have a succession plan in place. Mostly family owned Malaysia SMEs are still practicing a handing over the reins form of succession. With a volatile market and unmet inter-generational expectations, SMEs today face anxiety when it comes to business succession.
Here are 3 tips for SMEs when planning out a succession.
According to The Economist Intelligence Unit Report (EIU), keeping businesses in the family has some inherent advantages such as higher levels of commitment, uniformed purpose and mission. However, there are factors that can hinder succession like the unavoidable family tensions, unchecked favouritism. SMEs need to professionalise both business and the family structure for a smoother business succession.
The key to understanding the realities is to have early conversations even though it is a taboo in Asian culture. Such conversations are often brushed aside as the patriarch is still alive and actively involved in the business. Businesses with the family involved need to acknowledge the need to establish a formal infrastructure for business decision making. Succession planning dictates the future of a business, so start early as the process could take up to five years.
Develop future leaders
Family-run businesses account for more than 60% of all listed companies in South-east Asia, says the EIU. Succession is part of any business’s future, the question is when and how will it happen. SME owners should not assume that their children are equipped or desire to succeed the business. It is important to identify, train successors and to consider key employees for major roles to keep businesses running smoothly.
Hence, having a successor plan like a formal training program will help ensure a smoother succession. Identify key functions of your business and have your successor work in these areas. You need to be open-minded to the decisions that they make by observing their strengths and allowing them to make decisions.
Not everyone must have an equal share
Equal share for everyone sounds good only in theory and SMEs need to accept this for the best interest of the business. A good business succession plan includes business ownership, company values and tax strategies. Business owners tend to feel the need to be fully in charge to keep the business, but for a succession to follow through successfully, never do it alone.
A business no matter what size it is has a form of management authority and it can be tricky to hand it over to the next successor. It is easy to give up ownership of your business but when it comes to authority, it can be a challenging and disastrous if not managed well. SMEs may want to get external advisories like a financial security advisor to paint a clearer picture of the succession planning. After all, you want to retire and hand over your life’s hard work to trustworthy people that can continue your legacy.
SMEs need to establish a strong value in the business and be prepared to deal with unexpected events. Time will never stop, technology will continue to advance, where will your business be?