Cornelia Roth in an interview with Roland Greppmair - KERN - Die Nachfolgespezialisten on the role of the bank in the succession process
How long have you been active in the field of business succession?
FREE webinar ?presented by Nils Koerber
Company acquisition (M&A) - independence or strategy for growth
RG: Been with KERN for 3 years and about 1 year.
What tasks in the handover process does your company take on?
RG: We accompany succession processes as process facilitators. We are practically the navigation device for the transferor or transferee. Succession management is a very extensive and demanding field of activity, starting with the assessment of the succession situation, the valuation of the company and support for optimisation processes, coaching for succession within the family, qualified search for personalities for the purchase. In addition, there is the development and moderation of the entire generation change or sales process with the involvement of experienced network partners. In addition, qualified mediation procedures help in conflict situations as well as support in raising capital and the development of provision plans for sudden emergencies.
How do customers become aware of KERN?
RG: Our presence on the major German company exchanges, such as DUB or NexxtChange, is one of the ways interested parties come to us. The same applies to our online presence. In addition to the aforementioned opportunities, we also use personal contacts with banks and tax advisors, as well as lectures at associations and chambers of commerce. Not to forget ? Customer recommendations!
Cooperation with experts
How do you cooperate with the bank and other partners such as tax advisors or notaries?
RG: Company successions are a particularly delicate matter and not necessarily characterised by a particularly good success rate. Two out of three successions fail. The financing banks have also recognised this. By cooperating with a succession professional, they want to ensure that the succession is successful and that further opportunities arise for the bank, e.g. financing the successor. An extended workbench, so to speak, in order to be able to offer assistance as a bank on the topic of succession as well. This is why we bring partner banks into play when we accompany prospective buyers on the part of KERN and when it comes to financing the purchase price. We see and value tax advisors, lawyers, notaries and, if applicable, subsidy advisors as partners with their respective expert knowledge. The solutions are developed and coordinated as a project team. We do not see ourselves as competitors or as someone who wants to take something away from someone else. No, we see ourselves as integrators of many important disciplines in this complex process.
Cooperation with the Bank
VR-Bank Mittelfranken West eG has not yet developed a strategy in this area. How does the process work for you in cooperation with the bank?
RG: It all starts when the corporate client advisor discovers a need in conversation with the entrepreneur. If the long timeframe for succession is calculated correctly, it is time to actively address the issue of succession when the owner reaches the age of 55. The bank can provide the impetus, raise awareness of the issue with clever questions and offer the help of a professional on the subject. If the mandate goes to the succession advisor, the bank is then out of the information flow for the time being. Unless the transferor wants to proactively and openly take the bank into his confidence. However, confidentiality is the top priority in such a process. As a rule, the bank must trust that the right steps are being taken now to find the optimal succession scenario. Some banks want to make a profit from brokering the mandates and others only want to offer help but do not want to make a business out of it. We are open to both options. In the context of an active cooperation, both participate in the joint success, e.g. involvement of the bank in a purchase mandate / financing.
Preparation is half the battle
How far in advance should entrepreneurs start thinking about the handover?
RG: Starting with the first considerations, such a process usually takes 3-5 years. If the business is sold, the sales process alone takes at least a year. At 55 years of age, many entrepreneurs still feel too young to deal with this topic and then it often becomes difficult to find a suitable successor overnight for reasons of age. This also applies in particular to the ‘unforeseeable emergency’.
What form of handover is particularly often chosen by your customers?
RG: The IfM Bonn forecasts for the period 2018 ? 2022 that 53% of companies in the SME sector will be passed on within the family. This is still the majority of transfers, albeit with a decreasing trend. 18% are handed over or sold to an employee and 29% - which corresponds to approx. 8,500 companies in Bavaria ? are sold. This also corresponds to the main area of application at KERN.
Procedure of the succession counselling
In your opinion, how should the ‘perfect process’ of a Succession advice look?
RG: I see the cornerstone in taking stock and analysing the succession situation, from which a ‘master plan’ can then be developed. Often, taxes and legal issues are in the foreground, which disregard the important emotional aspect. In my opinion, however, these should always serve the optimisation. In the ideal world, the entrepreneur is fully in the juice of his creative energy and first clarifies with sparring partners what the handover of his company would mean. What does the time afterwards look like? Is it positive or negative? Being able to let go is a real “core competence” for a successful succession.
Then it is a question of finding the right successor. By asking the question “What does my company need?”, one frees oneself from internal family constraints or one’s own favourite scenarios and mentally positions the right company leader for a sustainable business model. Now you can start looking for a predestined successor within the family. Or perhaps an employee or an external person?
The role of the bank in the succession process
In your opinion, what role does the bank play in the topic of business succession? What should/could a bank still change here?
RG: A decisive one! Because after the tax advisor, it is the house bank that is close to the entrepreneur. But entrepreneurs are also ‘afraid’ of not being able to give an adequate answer to the question of succession. They are not sure about the consequences of such a rating discussion and behave cautiously.
The role of the bank as initiator in the sense of a client service can make a valuable contribution to its clients. The bank must show that the regulation of succession is important to it in the sense of both and that it does not only affect the risk factor in the rating. It is virtually securing tomorrow’s business.
From the customer’s point of view, this is often met with a lack of understanding and here I recommend active communication to the banks, gladly with the support of KERN as a specialist.
In your opinion, what are the limits of a bank’s succession advice?
RG: The will and the effort to ensure the sustainable existence of the company should be the limit and the pointing out or arranging of professional support. Succession counselling is not the original business of a bank. In addition, banks are also confronted with the following challenges:
- Too few staff (it is not a strategic goal to invest in the area of succession)
- Short-term banking business is in the foreground
Stumbling blocks of business succession
Where do you currently see particular challenges in the area of business succession?
RG: The topic, also with its economic consequences, must be brought much more into focus. Successors within the family increasingly have other plans, and attractive companies are faced with fewer and fewer potential buyers (demographic change). At the same time, the changes in the SME sector also offer opportunities for inorganic growth.
What causes most business successions to fail or what are the most common succession problems?
RG: To list a few: Purchase price, age, search for a suitable successor, economic situation. Ultimately, however, it is the emotions that cause two out of three successions to fail, especially in smaller companies.
What can be done to prevent these problems?
RG: To become aware of this. If we humans are already complex beings, family entrepreneurs are even more so. After all, they represent the family, the company and ultimately also the capital in one person. In the family, values such as belonging, security, love and recognition play a major role. The values in the company are rather performance, success, profit maximisation, etc. Capital is an expression of power and assertiveness in the company.
When handing over to the son or daughter, the question always arises: who is actually talking to whom? The entrepreneur with the child? The successor with the father or mother?
This is no different when selling the company and handing it over to an external party. Therefore, conflict resolution (mediation) is a recognised and success-tested means of resolving conflicts in the succession process with 90% probability.
Furthermore, it is helpful in all questions of succession to make use of a partner/expert at eye level in good time.
Preparing for the unexpected
Do you also prepare companies for emergencies in this context? (e.g. sudden death of the entrepreneur)
RG: In the course of our advisory work, we clearly point out the need for this and are also happy to work it out.
If so, what do you think is particularly important?
RGThat the pension plans for sudden emergencies are legally tenable and are always updated or adapted to the respective situation.
Can you provide me with materials on this topic? Do you have any literature recommendations for me?
RG: With pleasure our e-book
Thank you very much for the interview!
Cornelia Roth
as part of the bachelor thesis for VR-Bank Mittelfranken West eG
Tips for further reading:
Interview: Preparing the succession within the family well
Interview with Ingo Claus: Selling the company in 7 steps
Quickcheck: Can my bank help with business succession?
The choice of the optimal successor model
Start-up loan from LfA Förderbank Bayern also for business succession
Accompanying successions is a challenging and extensive field of activity. This includes, among other things, taking stock and determining the value of the company. However, coaching, especially for succession within the family, and the search for the right successor also play a role. In addition, we develop and moderate the handover process. We involve our experienced network partners in this process.
Often, the bank’s corporate client advisor discovers the need to deal with succession issues when the client reaches the age of 55. Then the bank can refer the client to a specialised professional. This often takes them out of the information flow for the time being. Unless the client continues to actively involve them. Confidentiality is the first priority here. And the bank must be able to trust the advisor to develop the right succession scenario.
Company succession has a high economic relevance. Purchase price, age, search for a suitable successor, economic situation often stand in the way of a successful succession. In smaller companies, however, the biggest stumbling block is emotion. This is why two out of three successions fail.
