Succession planning in a small business

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Ernie and Mila Bravo think their children are ready to take over.

by Myrna R. Co, SERDEF Media Bureau

(first published in Business Friday,  Philippine Daily Inquirer, May 27, 2016)

Small entrepreneurs do not set out planning and starting a business with a view to who will eventually succeed them.  Especially not if they are young, energetic, and full of bright ideas to grow the business.

Sooner or later – and the sooner the better for all concerned– owners will touch base with their mortality and begin thinking of the company’s survival beyond their own active life span.

The next generation is the most obvious place business owners look at when thinking of succession.

No matter how obvious, turnover to the owner’s heirs, is neither simple nor easy.

Most entrepreneurs struggled for years to build their businesses to the thriving establishments these are now.  Now that they can breathe easier, they remember the long hours, the skipped meals, the sleepless nights, and other sacrifices they went through to meet delivery deadlines and satisfy customers.  Having given their 100 per cent to the business, some have reservations as to whether their sons and daughters can give the same level of commitment to the business.

On the other hand, owners cannot assume their children want to take over.  Possibly, the young ones may have other plans and dreams for themselves that do not necessarily include taking over their parents’ companies.

An alternative for the owners is to look at their roster of loyal employees who may have both the experience and passion needed for the business to survive.

Sell the business and make a will

Maldwyn de Pano is among those who are uncertain his children can hack it.

De Pano put up his own printing shop in 1987, after working with a government office as a designer. He began with a second-hand machine that was older than he was and which kept breaking down and wasting ink and paper.  Thirty years later, his Design Plus has become a modern company equipped with cutting-edge digital printing technology.  It has also built a network of print brokers that enabled the company to serve an expanded market.

Today, at 56, de Pano is not sure how and to whom he will pass on what he considers his “lifetime work.”

Two of his three children have joined the business.  Dennise (de Pano-Avila) is Design Plus vice president for digital printing, while Nathaniel is its IT officer.

“Can they handle the responsibility?  Will they accept it?” are questions bugging him lately.

A bigger question that has troubled him is somewhat metaphysical:  “Should I deprive them of the fulfillment of taking their own entrepreneurial journey?”

He quotes Warren Buffett, said to be the No. 3 richest men in the world:  “Money is not the point.  It is what you have become.”

Buffet had famously expressed his intention to give away his fortune to charity.  As for his children:  “I want to give my kids just enough so that they would feel that they could do anything, but not so much that they would feel like doing nothing.”

With this in mind, De Pano is now considering selling his business and then making a will leaving the  proceeds to his children,  who will then have the resources to take the road  to wherever their passion lies.

 

Pass it on to employees

When he retired in 2014, Manolo Sy, founder of MS PTime Cargo Movers had in mind turning over the business to his employees.

His children have never been interested in the business.  “It wasn’t their cup of tea.  They were excelling in their respective fields (IT and industrial engineering),  enjoying their work immensely, and earning big money.”

Thus, he had devised an employee stock option plan designed to make his staff owners  and managers of the cargo company.

“We were in the business of service and we survived on the trust and confidence of our clients,” he says.  “Without this confidence, it is hard to ensure the continuity of the business.”

For years, he was preparing his marketing manager to succeed him because “she had management skills and was trusted by the clients.”  He recognized these qualities in her as early as when she started as a clerk.

Unfortunately, this “heir apparent’ had to leave the country when she had a chance to migrate to the United States.

Sy tried to develop  another employee for the leadership position as a second resort.  As it turned out, however, she wasn’t up to it.

With the failure of the stock option plan, the company closed in 2014.

 

Look to the next generation

 

Saint Martin Pharmaceuticals is expected to enjoy a smooth leadership transition from its founder to the founder’s children.

 

Ernesto Bravo put up the drug manufacturing company in 1976 after three years in the pharmaceutical trade.

 

The company survived industry-wide challenges , including the dominance of transnational oligopolies, martial rule and crony capitalism, and the Asian financial crisis.

 

Bravo led the organization of local drug manufacturers into the Association of Drug Industries of the Philippines which succeeded in breaking the stronghold of multinationals in the industry.

 

After 35 years on top of Saint Martin, Bravo is ready to hand over the reins to children Maria Rowena (Bravo-Manguerra)  and Jose Israel, who are currently handling finance and production, respectively.

 

The transition is 70 per cent complete, Bravo says.  “it is natural to worry a little, but my children are ready: They  are entrepreneurial and have the experience. They have the educational preparation for it, being pharmacists both.”  Even if they are not 100 per cent ready, they will learn along the way, he surmises.

 

He does not expect either to be his clone. They have to follow their own management style and strategies.  After all, the formulas which worked during his time may not do as well under present conditions.

 

Meanwhile, the patriarch is in the sidelines, ready to manage by exception.

 

Transition period

 

Whatever the exit route he decides to follow, the outgoing owner must remember succession planning requires sound preparation, preferably with the help of a competent adviser, according to Small Enterprises Research and Development (SERDEF) president Paterno Viloria. The plan should be communicated with key staff, investors, and other stake holders.

Transition will not take place overnight, Viloria adds.  An adequate transition period must be allowed to enable the organization to cope with the changeover.

(For more stories entrepreneurship stories, please visit the Small Enterprises Research and Development Foundation website at www.serdef.org.)

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