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Why family businesses fall apart

In an economy where jobs are scarce, inheriting a family business, especially those traditionally known for strength and economic resilience, can be considered a privilege and an advantage.

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.

It is estimated that a third of family businesses in South Africa will pass their business to the next generation. However, many do not successfully plan for this and a lack of proper planning often leads to the demise of the business.

Christo Botes, Business Partners Limited (BPL) executive director, believes the survival of a family business lies on a sound succession plan and on the extent to which the next generation is trained and prepared for running the business.

Unfortunately, he said, many South African businesses are not taking this approach.

Botes referred to the 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,” he explained.

“Without it, the transition from one generation to the next jeopardises all the hard work put into growing the business.”

He therefore urged the next generation 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,” he said.

“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, he said.

“Mentorship is a crucial part of this preparation and takes many forms.”

Botes said 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.”

(with the assistance of BPL)

Photo by Conversations Magazine

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