According to Federal Statistical Office men born in 1960 will live to be 76 and women to be 83. Statistically, today’s 63-year-old company owners still have between 13 and 20 years to live their organise succession in the family business in an orderly manner.
If you want to plan your succession in good time, there are various models to choose from. Here you can get an overview:
Table of contents
Overview of succession planning for family businesses
Family buy-out: transfer within the family
Management buy-in (MBI): Sale to external parties
Management buy-out (MBO): Handover to employees
Conversion into a foundation
Emergency planning for entrepreneurs and companies
Fixing timetables for business succession in the family business
When is a company sale advisable?
Overview of succession planning for family businesses
In most cases, succession in family businesses is implemented via two solutions: Through an intra-family transfer or the sale to a third party. We will show you here what these are and what advantages or disadvantages each model entails.
Family buy-out: transfer within the family
In the case of a family-internal succession, the Transfer ownership and control of the business from one generation to the next generation within the same family. This approach presumably ensures for the majority that the values and traditions that have made the company successful are maintained.
Advantages:
The Control over the future of the company stays in the family.
The Heritage and family values can be preserved.
The Succession process usually runs more smoothly and less disruptive than selling to an outsider.
For the employees, little changes at first glance. In the course of the transition, employees can also be subject to significant changes during the generation change.
Family members who are not involved in the day-to-day business can nevertheless Benefit from the financial returns.
Disadvantages:
Family dynamics (overlap of the family and company systems) can affect the Making decision-making more difficult and bring about conflicts.
Succession planning requires a lot of time and resources from family memberswho may already be busy with other tasks in everyday life.
Internal transfers do not always result in the best person selected for the job as family ties can play a bigger role than qualifications or experience.
Management buy-in (MBI): Sale to external parties
The sale to external investors can give the family and bring financial returns to the shareholders and allow it to withdraw from the company altogether on a cut-off date. However, the majority of this means that it loses control over the future direction of the company.
On the other hand, an MBI can ideally ensure that the Corporate culture is maintained, while at the same time Fresh ideas and perspectives be made possible by a new management.
Advantages:
Selling to an external successor can generate funds that the family business can use to invest in other opportunities, pay off debts or simply enjoy the new phase of life.
The entry of an external investor can perspectively Increase the valuation of the company and thus lead to attractive sales proceeds.
An MBI can improve the Improve the performance and competitiveness of the companyby bringing in new perspectives, skills and expertise. This may sometimes be more protracted within the family.
Introducing new management can make it easier for the family, Separate emotions from business decisions.
An MBI offers family entrepreneurs the opportunity to retire and to Enjoying the fruits of their labourwhile they hand over the company into capable hands.
Disadvantages:
The sale of a family business means that the shareholders Lose control over the operation, the decision-making process and the future direction.
The new owners or external managers may have Different values, goals and ideas from the familywhich can cause cultural problems in the existing structures.
A family business has its Unique identity and historywhich can be lost during the sales process or through an MBI.
External buyers or managers can bring their own team, which can contribute to the Loss of jobs for existing employees who have been working in the family business for a long time (of course, always within the framework of the legal requirements for the protection of employees).
Management buy-out (MBO): Handover to employees
A popular approach to succession in family businesses is handover to employees, where potential successors are identified and promoted within the business. As a rule, this involves current management personnel.
This method allows for a seamless succession transition, as the new leader is already familiar with the company’s culture, values and processes.
Advantages:
Secures the Continuity of the family business by handing over ownership and management to capable employees or a management team.
Provides for a smooth transition process for both the outgoing family member and the new employee/management team.
Helps, Retain key employeeswho might otherwise leave due to uncertainty about their future in the company.
Can lead to a increased motivation and loyalty among employees who are given the opportunity to become owners or managers of the company.
Disadvantages:
Can lead to conflicts in the family if members are different opinions have about how the succession arrangements are to be carried out in detail.
The selected staff member or management team may not have sufficient Experience, skills or knowledgeto lead the company with success.
The outgoing boss may find it difficult to Giving up control and decision-making powerwhich can become a challenge in the workplace. However, this also applies to all other solutions.
Conversion into a foundation
In rare cases, transferring the business to a foundation can be an effective way of ensuring continuity while at the same time maintaining the Protect the heritage and values of the founding family. A foundation can act as a neutral body that oversees the management of the company and whose board consists of family members and other experts.
Advantages:
Ensures the continuity of the family business through a Structured and organised succession planning. The proceeds can continue to benefit the family.
Offers tax advantages both for the family members who contribute their assets to the foundation and for the foundation itself.
Offers a Mechanism for philanthropic activities and social commitment and helps build a positive reputation for the company.
Disadvantages:
Can be used for Loss of control or influence over the company lead, especially if non-family members are involved in the administration of the foundation.
Requires careful Weighing up potential conflicts of interest between family memberswho are active in both the company and the foundation.
Could be due to the size or complexity not be an option for all family businesses.
Responsible ownership
Taking responsibility is a new and much discussed concept of the Company succession. It primarily revolves around the desire of company founders to ensure that their company continues to be run according to their ideas and that the successors pursue the same goals. Many entrepreneurs strive for this when looking for a successor. Nevertheless, the model of responsible ownership is much more far-reaching and often not as economically attractive for the transferor as a classic sale.
Currently, non-profit Foundations, Family Foundations, Double Foundations or Foundations & Co. common models that can help achieve the goals of accountability, but these approaches are legally and fiscally complex and therefore less flexible.
The exact legal structure for responsibility ownership is currently uncertain; however, there is a draft law that proposes some regulations:
- The annual net profit of the GmbH-VE belongs exclusively to the company and not to the shareholders.
- The assets remain directly tied to the fulfilment of the intended purpose.
In this approach to business succession planning - instead of inheritance or sale - the business continues to operate independently, but under careful management by trustees.
Emergency planning for entrepreneurs and companies
It is no secret that the risk of an unexpected succession situation due to death or serious illness increases with age. An accident or serious illness can literally take a company owner’s life even well before retirement age. throw you off course as an entrepreneur. Basically, a well thought-out emergency plan is a “must have” for every entrepreneur - regardless of age.
For this reason, the entrepreneurial Emergency plan among the most important precautionary instruments for company owners. However, it is also one of the most neglected precautions. Because around 70 % of all entrepreneurs have no or inadequate emergency preparedness. In the process, a carefully maintained entrepreneurial emergency file regulates the essential business and personal succession issues. In this way, it facilitates business succession in the family business and explicitly ensures the continued existence of a company. This includes, among other things:
- A representative who has been consulted and agreed with a Substitute regulation and a written Emergency plan. Incidentally, it does not help to appoint one’s spouse as a proxy. Such a proxy arrangement would be obsolete, among other things, if something happened to a married couple on a joint holiday trip.
- A Advisory board regulation for companies with about 15 employees or more. A Advisory Board is a cost-effective instrument. In doing so, he can support the company owner in strategic issues and, in an emergency, take over the operational management of the company at short notice.
- Clear Powers of attorneyThese include private powers of attorney and account authority for the company and private accounts as well as a power of attorney or procuration for the deputy.
- The company contracts synchronised with the Entrepreneur’s will.
- Other documents such as a Overview of key business partners, customers or suppliers. And quite banal: A Key and password list.
Fixing timetables for business succession in the family business
The drafting of the will usually also answers the 3 Ws of generational change: Whe will Wan Wen handed over?
If a suitable and willing successor is available in the entrepreneurial family, he or she should join the company in good time. It is recommended that one Timetable for the handover of operational management in the company and to work out the transfer of the assets.
In practice, the transfer of assets due to a gradual transfer of shares often takes place after the transfer of management. In this context, it is advisable to draw up a Business valuation on in order to value of the company in the estate.
The increasing freedom and wide choice of professional perspectives as well as a labour market that is still going well are currently ensuring that the majority of children from entrepreneurial families decide against a generation change within the family. As a result, many family-run companies are already affected by a Lack of entrepreneurs threatened.
Expert tip: Check the use of third-party management
If the company is to remain in family ownership, a Third-party managers a possible alternative. An experienced external manager could support the junior with his know-how and give the company additional valuable impulses from outside. The search for and induction of such a non-family manager requires careful planning and usually takes several months.
When is a company sale advisable?
However, often neither a generation change within the family nor the use of an external manager is an option. Then a Company sale another alternative. Senior entrepreneurs should prepare for this eventuality early on. After all, an external company succession takes an average of one to three years.
It is therefore helpful for entrepreneurs to deal with the generation change at an early stage. For the first time, entrepreneurs should think about succession planning in the family business from the age of 55. Because a business succession, unlike other projects, is a life decision that takes time to prepare.
Our daily counselling practice and various studies show: A late sale of the company makes a successful baton change more difficult. Two possible causes are a weakening innovative strength combined with an increasing investment backlog.
For this reason, early and thorough preparation of the company sale pays off in economically good times. Supporting the change of baton by specialists with transaction experience is an investment with a high return. Thanks to their experience, these straight Emotional business successions goal-oriented and identify potential conflicts at an early stage. In this way, they reduce the time and financial expenditure of the process and spare the parties involved emotional stress.
