Handing over the reins of a family business

A welder at a workshop. Before deciding who is capable of running your business, you need to train and pass skills to the potential successors. PHOTO | RACHEL MABALA

What you need to know:

  • Making decision. Succession is arguably the most important decision you’ll face as a family business owner. Getting it right will help ensure your firm’s longevity; getting it wrong could put it all at risk.

Succession planning is essential to making a smooth transition to the new generation. But failing to plan for a transition out of your business can result in a messy succession process and lost value.

Due to poor succession planning, many companies are plunged into chaos when the moment for the inevitable succession arrives.

According to business experts and coaches, messy succession plan has affected many businesses in Uganda and has resulted into some big firms to collapse after the demise of the founder.

Business experts believe that for any family business to succeed beyond the founder, there should be a clear vision that should separate the individual from the business.

Nice House of Plastics and Kiwa Industries are some of the notable businesses in Uganda who have succeeded due to a good succession plan.

Mukwano Industries Uganda Ltd, which according to its website began operations in the early 1980s in Kampala, with a single enterprise store dealing in general merchandise and produce is now in the third generation.

The Madhvani Family now in the fourth generation, the owners of Gateway Buses in Tororo, all show the power of well-organised family businesses.

These are examples of business that passed the mantle to the next generation. There are those that have taken the back seat, including Ugachick where Aga Sekalala Senior left the business to Aga Sekalala junior.

Nina Interiors owner Alice Karugaba is beginning to get to the background leaving Patricia Karugaba Kyazze, Roofings Ltd’s Sikander Lalani is leaving business to Oliver Lalani.

Planning succession
Dr Maggie Kigozi, a director at Crown Beverages, says a good succession plan begins during company registration.

“I have three children and we have equal shares among ourselves and that is where it begins, they know what I do, so it is easier for them to join in, the earlier the better,” she said.

She added; “My husband was in Pepsi Cola, I had children and I was into sports. I never paid attention until he died. I didn’t have any experience yet I was supposed to take over. The legacy will continue if you prepare people earlier.”

Dr Kigozi advises company founders to write a will that explains who takes what, in case the business owner dies.

“But all in all give the children responsibility at all stages, give them the challenge, let then understand where and how you get the money,” she said.

Mr Charles Ocici a business coach, said there are factors that should be considered before allocating business responsibilities to children.

“Let the children start visiting the business as early as possible for them to see and learn how the money they spend is made. Do it as per the level of maturity. Let the children appreciate this at every stage of life,” he said.

He added; “Do not introduce these children at a later stage, for instance, a child has finished a Master’s Degree then make them head of finance that is very detrimental.”

He believes as children mature, begin to put them into apprenticeships. Learn their areas of interest and then place them there, later introduce them to mentors who will introduce them to a more structured way.

“As you do that, remember that people will be adults and will have their interests, allow them to pursue their interests beyond business, if one wants to be a singer let them associate with singing,” he said.

If you don’t allow children to pursue their passion, according to Mr Ocici, they will resent the business knowing that it is that business that is making them not to pursue their dream.
Mr John Walugembe, the executive director of Federation of Small and Medium-sized Enterprises, says bringing the children into business differ but most parents want to handover much later.

This is because they believe children should get education so they end up coming into the family business at a later age.

“Parents will bring in children at the age of 28 years and above and that will take about 10 years to learn that business but still that varies from family to family,” he said.

Just like Mr Ocici, Mr Walugembe alludes that resistance can come when you just ‘plant’ your child in the business hence it’s better to bring the child earlier.

“Let them go through the ranks, the parents should not rush handing over and let them learn,” he said.

Why is it hard to let legacy go
Dr Kigozi, says some business founders don’t want to handover because they fear their source of livelihood will be taken away.

“Others don’t trust their children; they just look unethical and being a parent you can tell whether the child will continue the business legacy,” she said.

According to Mr Ocici, the reason why some of these businesses fall short is the failure of the founder to realize that as an individual cannot run a brand single-handedly.

He said a brand must be run but systems, mission, vision and values but once one allows the vision, mission to come in the business deflate the owner.

“The moment you think that as a founder you must be everything that is the beginning of failing, there is a limit to which an individual can be able to manage a large growing empire,” he said.

He added; “You cannot be in human resource, sales, marketing, customer care and also attending to competition still do everything competently. So it is the best way to let the founders transition and let the systems take over as business grows.”

However, most successful entrepreneurs find letting it go tough because it is just the addition of being in the limelight and feeling so scared of any other person running their businesses properly.

Mr Ocici said; “It’s painful in one way because you start to think that people can do without me not knowing that what is good for the business is much more important than for you as an individual and that should be clear.”

He adds; “Delegate people to do certain chores if it is good for the business, when you delegate, you will have time to concentrate on the bigger picture of the enterprise so the owner should cure the fear.”

Mr Ocici believes the business does not know you as the owner and for it to survive, it must meet the expectations of the customers at any one time that is the taste, quality, timeliness and individual cannot do it all that.

Why collapse
The biggest challenge of maintaining family legacies is delaying to introduce children into the business as early as possible and rushing them through the ranks.
Business experts say it’s detrimental to allow your children to go to school, get all the papers then pick them and make them marketing directors who have never been in the field trying to market anything.

“The child is also managing sales people yet he does not have the dynamics of selling from bottom to top yet the marketers know the game by the end of the day, this rank and title will affect the energy of the sales team,” Mr Ocici said.

He also observes that sometimes when the employees feel they are being led with someone who is inadequate, they will find ways of sabotaging the operations of the business and this will kill the sales of the company.

Mr Walugembe said some parents believe that they should work for the children while they go to school later they hand over the business.

“Handing over a business is not like handing over a house or a title deed. Give your children time to develop muscles rather than somersaulting them into the firm,” he said

KEY CONSIDERATIONS
When it comes to succession, the most important advice anyone can give a family business owner is plan. Plan early, and plan ahead. Review your plans and keep them up to date. And seek expert advice where necessary. Remember the unexpected could strike at any time.
Transition is something you need to be ready for.

Handing over a business obviously has major tax implications. And while it is vital to have the right tax strategy in place before transition, don’t be tempted to let the tail wag the dog.

Your business decisions should always be based on commercial merit, not on how much tax you can save.

Many business owners assume that they’ll benefit from 100 per cent inheritance and capital gains tax relief when relinquishing the business.