We have already written here several times about the impending shortage of entrepreneurs. Eric Schweitzer, the President of the Association of German Chambers of Industry and Commerce? is sounding the alarm for the second time in just a few months: “Entrepreneurs are becoming scarce as skilled workers. What does this mean for family entrepreneurs who are preparing a business succession in Osnabrück and the surrounding area?

Thomas Serries, head of the corporate service of the Economic development of the district of OsnabrückOn 07 June 2016, at an event on the topic of business succession, the German Federal Ministry of Economics and Technology (BMBF) continuing lack of entrepreneursIn the coming years, there will probably be more companies on offer than potential buyers. The best chances are those sellers who offer an attractive company and the lowest possible risk investment for a buyer?

Especially for regions characterised by strong family businesses, such as the Osnabrücker Land, Münsterland or East Westphalia, the successful solution of company succession in the SME sector is one of the most important issues for the future.

Establish transfer capability at an early stage

The lack of entrepreneurs is a major reason for establishing the succession capability of a company facing generational change at an early stage. Its evaluation is essentially carried out via the following two criteria:

Sustainable earning power: A sustainably profitable company pays a positive return on the company’s equity and prices in the entrepreneurial risk. To demonstrate the company’s sustainable earning power and the highest possible enterprise value, a transferor should present its Clean up the balance sheet at an early stage and raise hidden reserves. A higher tax burden in the short term usually pays for itself through a significantly higher sales price.
Market entrepreneurial wage: The entrepreneur should pay himself a market entrepreneur’s wage; the adjusted entrepreneur’s wage should be set at the market salary level of an outside manager.

In addition, other issues play an important role in the assessment of transferability. These include, for example, the question of the operational dependence of the company on the owner, the existence of a second management level and a future-oriented orientation of the products and services offered.

In the context of a pending company succession, it is important to make the company fit for the generational change at an early stage. This includes, among other things, a clear separation of private and business assets.

Lack of entrepreneurs: Good preparation helps in the search for successors

In times of a shortage of skilled workers, the search for a company successor is like a battle for the best brains. The DIHK refers in its press release to the steadily declining number of young start-ups and takeovers over the past four years. In the view of the DIHK, a competitive SME sector thrives in particular on the fact that pioneers repeatedly challenge the established top dogs.

For start-ups, taking over a company offers opportunities but also risks. On the one hand, they take over an established business model with an ideally positive cash flow. On the other hand, an organisation and decision-making culture that is very tailored to the owner can also represent a risk for the acquirer.

The search for a suitable company successor definitely includes the preparation of attractive and meaningful sales documents and the determination of an objectified company value. This means that family entrepreneurs are well prepared for the search for a successor, even in times of a shortage of entrepreneurs.

The positive side effect: a potential successor to the company is presented with a clear overview of the opportunities and risks of his investment and this helps him to prepare his own business plan and subsequent discussions with banks and investors.

Professional guidance avoids costly mistakes in business succession

A transaction-experienced advisor also helps to organise the search for candidates and the subsequent sales process in a stringent and time-saving manner. This includes, among other things, the preparation of the necessary confidentiality and Letters of Intent (LoI), the moderation of negotiations, as well as the organisation of a Company audit (due diligence) or the drafting of the specific purchase contract. ”

The management consultant Nils Koerber points out that the translation work in a succession process should not be underestimated: ‘Without any transaction experience, no buyer should take on this task without an advisor. The risk of costly mistakes is clearly too high in times of entrepreneurial shortage.? And not only in the Osnabrück region, Münsterland, Emsland or East Westphalia.