DIHK President Eric Schweitzer sounded the alarm in the F.A.Z. on 10 November 2014: “More than 40 percent of senior entrepreneurs cannot find the right new boss. The situation in industry is even more dramatic. Here, a company successor can choose from five companies to be handed over.
Good preparation for business succession pays off - The most important 5 questions
Only some of the senior citizens can count on a family-internal business succession: Whereas ten years ago two-thirds of the generation change was organised within the family, this model is currently the solution in less than 40% of all business successions.
Searching for the company’s successor is a strategic project
Time plays a decisive role here. On average, company succession takes two to three years,” explains Ingo Claus from K.E.R.N ? The Succession Specialists. But it can also take more than five years. This high time requirement makes it clear that entrepreneurs must approach the generation change as a strategic project,” Claus continues. Good preparation of one’s own company succession pays off.
When dealing with this topic, a senior entrepreneur should answer the following five entry questions into the process as unsentimentally as possible.
1. is my company capable of succession?
If a company generates an appropriate entrepreneurial wage and a return on equity, you should think about a business succession.
If your company does not meet these basic requirements, you as an entrepreneur should try to improve the earnings situation and market position by restructuring the business. A good tool for uncovering internal weaknesses is, for example, the INQA company check “Guter Mittelstand”. After two to three years, a successfully restructured company often finds significantly more interested parties for a company succession than before.
2 When should I start thinking about business succession?
There is no perfect age to think about business succession. The older the senior entrepreneur, the higher the probability of a disorganised emergency succession due to death or illness.
As a rule of thumb, it can be said that an entrepreneur between 50 and 60 should deal with the topic of his business succession for the first time. A timetable of what is to be handed over, when (and to whom) is very helpful.
A little tip: Plan your business succession backwards. Based on the average life expectancy of 78 years (men) or 83 years (women), how many years do you want to enjoy your retirement? The time remaining between your planned retirement and your current age indicates the urgency of your very personal business succession. Also consider that in the case of an external business succession, your negotiating position will weaken with increasing age.
3) How can I prepare an external business succession well?
A structured search for an external successor always takes place on the basis of well-prepared and written sales documents in combination with a company valuation. When preparing a company exposé, you should ideally answer the questions that any buyer, or at the latest his bank, will ask you.
Try to put yourself in the position of the acquirer, e.g. answer questions about the business model, the products of your company and your organisation. What makes your company special? What distinguishes your company from others?
Think up to three years into the future: Where will your company be successful in the future? Where are the opportunities and risks for your company? Are supplier and customer relationships sustainable or do these networks depend on you as an entrepreneur?
Let consultants specialising in business succession support you in the preparation of a high-quality exposé. This will ensure that you make a positive first impression on potential business successors.
4. how do I deal with tax and legal issues?
Some of the tax and legal issues are complex. Any changes to be made in the tax or company law structure require time before they take effect.
This also applies in particular if certain assets (e.g. real estate) are to be separated from the company in a tax-optimised manner before the planned generation change. A change of legal form from a tax perspective also requires at least two years before the tax advantages take effect.
Here, too, the following applies: Use tax advisors and lawyers who specialise in the topic of business succession to prepare for the generation change.
Incidentally, in the context of preparing a company succession, it also pays to abolish certain tax constructions and disclose hidden reserves. This saves questions from the successor and his financiers. In most cases, this also has a positive effect on the value of the company: the higher value often leads to a significantly higher sales price, even after taxes.
What emotional stumbling blocks should I expect?
Unlike many other projects in everyday business life, a company succession is a very special project. This is because it involves the preservation and continuation of your entrepreneurial life’s work.
In any case, plan for failure. Very few business succession projects succeed at the first attempt. This can be due to objectively understandable details such as a failure to obtain financing.
Often the causes of such stumbling blocks also lie in the communication between the senior entrepreneur and the company successor. In such conflict situations, business mediators specialised in business succession can help, keeping an eye on the soft factors as well as the hard facts.
Read also our Comment on the entrepreneurial bottleneck in the SME sector.
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