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Family businesses: To keep or to let go?

By Peter Theuri | September 9th 2020 at 00:00:00 GMT +0300

Sometimes, apprenticeship works. Aliko Dangote, Africa’s richest man, came from a lineage that was known for its business acumen. In sports, children sometimes take after their parents’ trade; Kenyan football national team captain Victor Wanyama’s father played for Harambee Stars, and Wanyama’s siblings, including McDonald Mariga, have excelled in sports. But it does not always happen that way.

When it comes to family businesses, many owners assume their children would want to keep the enterprise within the family. After investing their time, money and sweat into the business, entrepreneurs are sometimes surprised to learn their kids are not interested in taking over the family business. Some would rather not even learn how the business works, as they are interested in different things altogether.

A PwC 2017 Family Business Survey showed that among the family-owned businesses anticipating a transition within the next five years in the United States. In the US, where family owned businesses abound, 41 per cent plan to pass the them to the next generation to run; 11 per cent plan to pass onto the next generation to own but not run and 30 per cent plan to sell to a third party.

In Kenya, family businesses inherited and run by siblings have lately been the source of drama and a number of them have been left on their knees after shareholders fought over management and who should take what home.

But even when one has children who are willing to run the business, selling the entity might be considered.

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While it may mean that the family business has slipped away from the ‘rightful’ owners, some circumstances may force the founders of the venture to do away with it.

Here are some of the reasons why a business person could opt to sell a family venture, or shares that could be inherited by heirs in a company, instead of leaving it in the care of the children:

In need of maximum rewards

The retiring generation may feel that they need maximum financial proceeds from the business and realise that the full market value of the business could be obtained by a professionally managed, competitive merger and acquisition process in which the purchase opportunity is confidentially shopped to multiple prospects.

Passing it down the family line will most likely not yield the same result. The pressure that would be placed on professionals to deliver would not apply to family. What is more, family could run the business down with the founders’ hands tied and probably unable to reprimand them. For assured benefits, many business owners turn to external professionals.

Shareholders’ wrangles

Multiple shareholders complicate the succession by any individual shareholder’s progeny. These may lead to court cases and physical wrangles and may lead to business collapse. Such considerations may mean that their children will not inherit their positions in the shareholding without a dispute.

And if the children do indeed sit among the shareholders, that the rest of the shareholders may force them, and thus the family’s stake in such a business, out. With such a consideration, such a shareholder will rather sell their shares and invest elsewhere.

Siblings’ chances of dispute

Parental concern about fairness to multiple siblings may encourage selling the company so that all may gain fairly. It is not uncommon to have one or more siblings working in the business and others not at all. There may be only one genuine candidate who wants and is ready to assume the leadership role, or perhaps multiple. Either way, things can get messy fast.

In Kenya, a lot of retail giants have been rocked by sibling squabbles. While founders did everything in their powers to create business behemoth, the children come to fight over the estates. Sometimes, they end up embarrassing the family and sullying the name of the founder.

More options

An expanding economy simply offers each successive generation more options. There is a greater perceived opportunity elsewhere. It is a way of escaping challenging interpersonal family dynamics.

Also, society has become increasingly technology-enabled. Attractive alternatives have been created that did not exist in today’s scale, just two decades ago.

Lack of proper planning and grooming

Many family businesses are simply not run very effectively, and unless the next generation has the vision, resources, and complete freedom to restructure everything, the business may present limited room for career growth. 

In this case, therefore, the progeny is unable to keep the business wheels rolling. Some have never participated in the business. Cast into the middle of action, they are unable to perform.

Lack of viability

Even if the family owners get along, it may be that preservation of the business is impossible under the current ownership. If one believes that the next-generation owners are not capable of maintaining the culture and values of the organisation, it may be best to sell to other owners who are.

This notion seems counter-intuitive, since one of the reasons families stay in business together is to perpetuate their business culture. However, in certain cases the next generation may not be good stewards of assets.

Disinterest from potential heirs

This is a common occurrence for businesses that require a great deal of owners’ attention, such as service orientated entities. If the heirs’ commitment wanes, it is time to consider whether holding the business makes sense.

The decision to sell, thus, becomes a purely economic one. If keeping the business is more financially lucrative than selling, then it makes more sense to try maintaining the business with non-family management.

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Victor Wanyama Aliko Dangote Family Business
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