Succession in SMEs: Why planning cannot wait for a business to "work out"
In Brazil, where around 90% of companies are family-owned and employ 75% of the country's workforce, succession continues to be one of the most avoided - and most expensive - topics in the routine of small and medium-sized entrepreneurs.
The paradox is well known: while the business grows, the conversation about who will run it in the future remains for later. The problem is that "later" usually comes too late.
A survey by JM Consultoria, carried out between 2021 and 2025 with 333 small and medium-sized companies with annual revenue between R$1 million and R$60 million, shows that 91% of businesses do not have a structured plan for leadership transition.
The numbers help you understand the size of the risk. A World Bank estimate indicates that only 30% of family businesses reach the third generation, and the scenario is expected to intensify in the coming years.
This is due to the fact that the generational changes expected between 2025 and 2030 should represent the largest transfer of command and assets in the country's recent history.
For Sara Hughes, president of the board of FBN Brasil (Family Business Network Brasil), a Swiss entity that brings together business families from all over the world and has been operating in the country for 25 years, the delay in succession planning has a simple and recurring explanation in the first years of a business: the fact that succession is simply not on the radar.
"In the first five years, the entrepreneur doesn't even think about it. He is trying to survive and this subject remains far from his mind", he says.
She also adds that, until the first 10 years, the entrepreneur prioritizes the stabilization of the business.
It is a phase in which the urgency of cash, customers and operations consumes all the founder's energy and any discussion about "what comes next" seems premature, almost out of touch with everyday reality.
The problem is that waiting for the company to "stabilize" before starting to think about succession is, in general, waiting too much.
The good news is that perception on the subject is changing quickly. If in 2021 only 24% of members of the current generation of family businesses in Brazil claimed to have a robust succession plan, the following year this percentage jumped to 67%, according to a global survey on the new generation of family businesses.
The jump suggests that the topic is no longer taboo, however, the distance between "being aware" and "having a formalized plan" is still large, especially among smaller businesses, which tend to have less governance structure than large family businesses.
Another point that Sara Hughes highlights is the understanding, increasingly consolidated among business families, that succession does not necessarily mean putting the son in charge.
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For her, the heir does not need to follow the professional trajectory of the founders, but it is essential that he is aware of everything to continue the legacy.
"Being aware and having tools to perpetuate the business is one of the ways", he summarizes.
This vision is in line with a change in behavior observed among new generations of Brazilian business families.
The number of heirs who have no automatic interest in taking over the family business has grown, either because they associate their father or mother's routine with exhaustion and overload, or because they were not brought into the company from an early age.
In light of this, the safest path is not to force an early choice of successor, but rather to create, from the beginning, governance structures that provide the family, and potential heirs, with information, preparation and real options when deciding the future of the business.
For small and medium-sized companies, this process usually involves relatively simple steps, but they are rarely put into practice. This is:
- Diagnose who the possible successors are (family or not) and what level of preparation each one is;
- Formalize agreements between partners;
- Create minimum governance instances that clearly separate the roles of family, property and management.
The absence of this structure not only compromises companies in difficulty, but also affects healthy businesses, which lose competitiveness not due to lack of market, but due to internal conflicts and decisions taken under pressure, at the wrong time.
Succession is not a problem of the future. It is a governance issue that should enter the agenda of small and medium-sized companies much earlier than it normally does and, preferably, before urgency decides for it.
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Source: CNN