Succession planning for Vietnamese businesses: an introduction. Vietnam succession planning series, Part 1 of 3, 2010

Transcription

1 Succession planning for Vietnamese businesses: an introduction Vietnam succession planning series, Part 1 of 3, 2010

2 It takes time to build a successful business. It also takes time to pass it on. Although succession planning can be simply defined as the process of transferring the control and ownership of a business, developing and executing a succession plan is not nearly so simple. As the owner of or investor in a privately held business, you need to answer some hard questions. For instance, how long do you want to stay in the business? How sustainable is the business model going forward? Ken Atkinson Managing Partner, Grant Thornton Vietnam This succession planning publication is one of a three part series on Succession Planning for Vietnamese Businesses. Part 1: An Introduction to Succession Planning Part 2: Putting Succession Planning into Practice Part 3: Following the Process Through Contents 03 Knowledge is what helps 04 What is Succession Planning? 05 Succession planning myths 06 The planning process 07 About Grant Thornton Vietnam These and other Grant Thornton Vietnam publications are available for download from Succession planning for Vietnamese businesses 2

3 Knowledge is what helps Succession planning is a concept which is not widely understood in Vietnam, but over the coming years will become more and more important to business owners and their successors. Succession planning focuses on successful business owners planning for the future. It is essentially a planned process to allow a business to continue growing into the future with the right people in charge, at the same time allowing the current owners to exit and maximise the value of their business. Why is this important in Vietnam? Succession planning is closely linked with generational changes in businesses. With Vietnam having grown and developed dramatically since Doi Moi in the late 1980 s and the passing of the Domestic Enterprise law in 2000 many successful privately held businesses will soon be ready to be passed to children or the next generation of managers. It is important for all business owners to appreciate that they cannot run their business forever, and thinking about who is going to run the business next is something that can be both challenging and rewarding. For family businesses, determining whether children are ready to run the business, whether they are the right people to run the business and whether they actually want to be involved, are all part of the process. Grant Thornton Vietnam assists businesses of all sizes and structures with strategic and planning advice; advice that is relevant to Vietnam. From introducing first-time-audits and internal reviews, so that owners can start to step back from the business knowing that their business is safe, through to longer term structuring and planning strategies, and a wide range of advice along the way. Ken Atkinson Managing Partner, Grant Thornton Vietnam Succession planning for Vietnamese businesses 3

4 What is Succession Planning? Succession planning is a strategic and deliberate activity to ensure an organisation has a sustainable resource of key people ready to assume critical roles as they are required. Succession planning involves identifying managers capable of growing a business into the future. It is understanding how your decisions affect key employees. If you run a family business, it is also requires that you consider emotionally challenging issues that may call the skills of your family members into question or require you to creatively structure your succession to be fair to all your children, understanding that fair and equal are not the same thing. These issues may be complex, and sometimes uncomfortable to face, but ignoring them won t make them go away. While solutions exist to these quandaries, they won t appear overnight. If you want to ensure the long-term survival of the business, minimise taxes and for family enterprises maintain healthy family relationships, it s never too early to put a succession plan in place. Research from Grant Thornton International s International Business Report has shown that a sale to, or passing the business to, a family member is now the most likely method of changing ownership for privately held businesses (23 per cent). This method is the only one to have increased in popularity since All other methods of change fell in popularity. Trade sale, the most popular method in 2007, dropped seven per cent from 25 per cent to 18 per cent in Mergers and flotations/ipos were similarly unattractive compared to 2005, both falling by seven per cent to nine and eight per cent respectively suggesting that the economic crisis has changed the strategies of many privately held businesses as their businesses fall in value. All of these factors, combined, demonstrate the need to plan for succession. To find the right people to run the business in the future, with a vision that is consistent and that can be followed h by the next generation of key employees, so that ownership can successfully pass, is a challenge that takes time. Most popular type of change in ownership global average percentage Source: Grant Thornton International Business Report 2009 Trade Sale Bring in private equity/bank investors Flotation/ IPO Sell/pass to family member Management buy-out/ buy-in Sale to employees Merger Other Succession planning for Vietnamese businesses 4

5 Succession planning myths Myths and misunderstandings can be road blocks to implementing a successful succession planning process. Some of the more common myths are: Myth 1: Succession planning is only an issue for big companies. The smaller the business the greater the impact that will be felt if a key employee is no longer part of the business. Of the 460,000 companies in Vietnam today, less than 5% are public or government owned. The remainder of companies are smaller and or privately held businesses, many of whom will be adversely affected if key staff depart and cannot be replaced. Myth 2: Succession planning is only for the rich. Succession planning is a way to ensure that you maximise the wealth that you have and to ensure that this wealth is not diluted or eroded due to bad planning. Without planning, matters like tax can have a major effect when current owners wish to retire from the business. Without planning, key staff may not see the role that they will play in the future, which can result in staff leaving and looking for other challenges. Myth 3: Succession planning is a one-time event. Succession planning and grooming leadership within an organisation is an ongoing process. Leadership development is one of the most critical aspects for growing companies, even more so when developing sustainable succession plans. Myth 4: I can do my businesses succession planning without outside help. Although this may be true for some, this approach usually fails as the entire process gets very complicated. It is the outside professional assistance that helps open the eyes of the business owners and key individuals to the ideas, concepts and strategies necessary to help them through the process. At the same time, businesses should not rely on a single advisor but a core group of experts who can share and combine ideas (eg, a lawyer, accountant and banker). Myth 5: I will agree to sell the business first, then the succession planning can begin. Not only is this a dangerous process, but one that will undoubtedly result in a loss of value. Most transactions to acquire a business are based upon valuations derived from future potential earnings. A company with a sound management team, good growth prospects and obvious and transparent plans, ie a business that has planned for the future, will result in a much higher sales price than one which has not. Often a business that has no succession plans and relies on a single key person will be worth its current asset value as the future is too uncertain to base values on future earnings. Succession planning for Vietnamese businesses 5

6 The planning process Although there is no definitive how to manual for developing an effective succession plan, our experience shows that the following actions can help the business survive and thrive into the future. Start early Succession planning cannot be approached as a onetime event. Instead, it is a process that should begin long before the owners plan to exit the business. Starting early also ensures you can select from the widest range of options available to you options for how to exit the business and who will take over the management of the business. Commit your time Getting the business to its current level took time and commitment. A succession plan needs the same attention. A good succession plan will require the involvement of a number of stakeholders and advisors, all of whom will need to be committed to the process. Identify your business value drivers By understanding which parts of the business will be most valuable to a purchaser or other potential successor, you can maximise the value of those assets in advance. This is also a good chance to reassess the current focus of the business, especially if it has drifted away from the original core that the business was founded on. Articulate your core values One way to ensure the business maintains its focus and follows the path you envision is by clearly articulating your core values and instilling them among all your staff. An organisation that is aware of its core values and lives them every day, is one that is far more focussed and likely to be successful into the future. Rely on decision-making frameworks These can help strip the emotion from your key decisions and provide a roadmap for your successors to follow. Frameworks need to be robust and flexible at the same time, built on the premise that they ensure personal feelings and attitudes towards others do not get in the way of good business decisions. Involve your successors in your planning When key employees, family members and potential investors understand your intentions, they are more likely to support your decisions. Successors who are empowered with knowledge about the future and become part of the planning process will be far more loyal to the business and to your future. Separate your business and family assets This involves more than adopting internal control processes and performance management practices. It may also mean introducing more formal operating processes from the establishment of shareholder agreements and employment agreements to holding regular board meetings. It also means receiving appropriate and documented remuneration from the business for the services you provide, and planning to live comfortably on the salary and dividends from the business. Succession planning for Vietnamese businesses 6

7 Grant Thornton Vietnam About Us At Grant Thornton Vietnam, you benefit from a combination of our global connections and locally developed solutions to ensure that you reach your goals and achieve success in Vietnam. Grant Thornton Vietnam, an independent member within Grant Thornton International and a wholly foreign-owned company, was established in 1993 as the second international firm to operate in audit, tax and business advisory services, with offices in Hanoi and Ho Chi Minh City. Our mission is to be the leading service provider in the Greater Mekong region providing distinctive client service and bold leadership through empowered people. We help businesses and business owners everyday with a wide range of advice. We help businesses understand the issues that affect their business, and assist them to plan for the future. If you would like to learn more about how Grant Thornton can help with you with Succession Planning, or any other matter, please do not hesitate to contact us for an obligation-free discussion. Ken Atkinson Managing Partner T E ken.atkinson@gt.com.vn Downloads For additional downloads and technical information about business issues in Vietnam visit: Ho Chi Minh City 28 th Floor Saigon Trade Center 37 Ton Duc Thang St District 1 T F Hanoi 8 th Floor Vinaplast-Domus Building 39A Ngo Quyen St Hoan Kiem District T F Audit Nguyen Thi Vinh Ha Audit Partner T E vinha.nguyen@gt.com.vn Alan Dy Audit Director T E alan.dy@gt.com.vn Corporate Finance Matthew Lourey Corporate Finance Director T E matthew.lourey@gt.com.vn Tax Services Ronald Parks Tax Partner T E ronald.parks@gt.com.vn Business Consulting Ken Atkinson Managing Partner T E ken.atkinson@gt.com.vn Succession planning for Vietnamese businesses 7

8 Grant Thronton (Vietnam) Ltd. All rights reserved. Grant Thornton Vietnam is a member firm within Grant Thornton International Ltd ( Grant Thornton International ). Grant Thornton International and the member firms are not a worldwide partnership. Services are delivered by the member firms independently. This publication is general in nature and should not be construed as providing advice. No responsibility is taken for any party acting on the contents of this document.