Businessman looking at an open folder of papers

Clarify important questions about business succession in advance

"What does my business expect when I leave?" This question is on the mind of many a mature entrepreneur. He has built and developed his business and feels that the time for change has come. More and more often he will hear from his family "You should finally take a step back...". 

Neither "cutting back" nor setting the course for the company's future and succession can be implemented overnight. Even if the "inner decision" has been made and a decision has been taken, a successful succession process takes up to 4 years. For this reason, a company owner should clarify important questions regarding company succession in advance.

From the decision to start a promising search for a company successor, a number of measures are usually necessary to make the company "succession-ready". To this end, an entrepreneur must answer the following important questions, among others, before a generational change:

  • The 3Ws: What should be handed over to whom and when?
  • Should the company be continued in or outside the family
  • When is a company sale advisable?

Regardless of whether a succession is possible within the family or an external successor has to be found; the given structures must enable a "new boss" to have a future. Since medium-sized companies are tailored and oriented towards the personality of the owner, some structural changes often have to be made in the organisation and external presentation.

Arrange the balance sheet and create internal structures for a successful handover

Another important step is the clarification of ownership: This includes, among other things, the separation of company and private assets, the preparation of retirement provisions and the adjustment of the balance sheet in the context of the company valuation.

An important topic concerns the value of the company; experience shows that it is difficult to find the "right" value. An often high "felt and emotional company value" must ultimately adapt to the objective value of a company valuation based on the previous financial results, market position and future prospects. Ultimately, a company can only be successfully transferred to a successor if the asking price is realistic for the market. Furthermore, a successor will always value a company on the basis of future earnings expectations.

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About the author:

Thomas Dörr is a partner of K.E.R.N ? Die Nachfolgespezialisten in Frankfurt and assists entrepreneurs with company succession as well as company sales and acquisitions in Frankfurt, Wiesbaden and Hesse.

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