The topic of succession planning is an important step in ensuring the continuity and future success of any business. In this article we give you a comprehensive overview of all important information to secure a successful succession solution for your company.
- Entrepreneurs should take into account the Plan succession for their life’s work at an early stage
- The business successor can come from within the family, from within the business or be an external buyer
- For successful implementation, the following are required Thorough preparation and preparation of the documents for the transfer of the company crucial
- Find people interested in buying a company on our company exchange
Table of contents
- Read shortly
- Definition of business succession
- Forms of business succession
- External company succession in 5 steps
- Business Succession Checklist
- 3 tips for successful business succession
- Common succession mistakes for businesses
Definition of business succession
Business succession is the process of transferring ownership of a business from one person or group of people to another. Succession planning is an important part of business succession as it ensures that a business remains successful and profitable when the current owner(s) retire or leave the business.
Forms of business succession
Farms can be transferred in many forms, including:
- Passing on the business to family members ? this is often referred to as ?family-internal succession?
- Sale of the company to an external party ? this can be a private person or a company
- Merger with another company or entering into a joint venture
- A Management Buy Out (MBO) ? here the current managers take over ownership and control of the company
- Sale of parts of the company ? this could include the sale of business units, product lines or other assets
In the family or rather externally?
It depends on the individual family and its individual goals whether the business succession should be regulated within the family or externally. Since every case is different, it is important to Carefully weigh up the advantages and disadvantages of both optionsbefore you make a decision.
For example, if the family business is complex and several family members are involved, a external expert or a strategic investor can provide new impetus and thereby lead the company to a new stage of development.
On the other hand, if a family member knows the business and its operations very well, is passionate about the business and is well trained, he or she may be better suited to take over.
Ultimately, there are various options that need to be considered and evaluated in detail in order to find the right solution for the business in the end.
External company succession in 5 steps
Planning for the future of your business is critical. With the right strategies, you can ensure a smooth transition and set your business up for continued success.
Step 1: Succession planning
Succession planning is about the preparation of a orderly transition of leadership positions, responsibilities and ownership in a company. Planning also includes making the entire organisation of a company fit for handover. This process necessarily includes a timetable in the first step, which serves as orientation for all those involved.
Step 2: Business valuation
An important step in the preparation of the sale is the determination of the enterprise value in order to have an orientation as to what sales price the seller can expect. Common methods for this are an assessment using the multiple method or an objective calculation using the Income approach according to IDW S1.
Step 3: Structuring the handover
The structuring of the handover includes the Preparation and drafting of necessary documents and reports, such as the company exposé or financial reports. Ambiguities and possible stumbling blocks should be known. You do not want to present incomplete documents to a potential buyer or have to create documents only after a request.
The more thorough the preparations are completed in this phase, the smoother the sales process can go.
Step 4: Company succession exchange
A succession exchange is a platform that brings together people who want to buy or sell a business with potential buyers and sellers. It enables interested parties to Access to information on potential successors and enables sellers to put their businesses up for sale.
Anonymity can be ensured via M&A advisors or direct listings should be so neutral that identification is not possible in the first exchange.
The exchange offers an online marketplace on which Buyer and seller learn important details of a possible transaction can. In addition, some providers offer supporting services such as due diligence and financial analysis to ensure that the transaction is conducted in a fair and transparent manner.
Step 5: Completing the transition process
The fourth phase of business succession is the completion of the transition process. In this phase it must be ensured that Successfully fulfilled all legal, financial and operational requirements were made to ensure a smooth transition from the current leadership to the new leadership.
At this stage, all documents for the transfer to a new owner must be properly updated and submitted to the relevant authorities, such as the tax authorities or regulators. Furthermore, all other necessary steps should be taken to ensure a successful transition. One option here is the creation of a company manual describing the old and, if applicable, new policies, competences, responsibilities and procedures.
Business Succession Checklist
- Place a Timetable for the transfer of assets, management positions and responsibilities firm.
- Make an inventory of the assets and liabilities of the business to be transferred.
- Check the existing legal documents, including business contracts and insurance policies.
- Determine the financial needs related to succession planning.
- Update the business records to reflect the Changes in ownership and management responsibilities to be taken into account.
- Develop control strategies to reduce the Tax burden to be reduced to a minimum through skilful action.
- Use Professional advice during the search for suitable successors. Besides an excellent network, the greatest advantage of a qualified advisor is his emotional neutrality. Only a professional can weigh up and bring together the concerns of all parties involved.
- Identify potential successors and assess their qualifications.
- Develop a communication strategy to inform employees, customers, suppliers and other stakeholders after the sale.
- Check the business operations regularly and make adjustments as necessary to ensure a smooth succession process.
3 tips for successful business succession
Since 2004, we have been supporting our clients with the generation change or the sale of their life’s work. From our wealth of experience, we would like to share three tips with you at this point.
Company succession tax-free
A Company succession tax-free is possible if a business is inherited by one generation within the family, but the successor also actively continues the business. By means of a so-called 5-year or 7-year model, the Tax burden reduced by 85 % or even 100 % become.
Since there are certain pitfalls that should be considered and it also makes sense to plan the succession very early, we will be happy to advise you. Basically, the individual case must always be considered.
There are also extended tax optimisations if transfer constructions are prepared at an early stage before a sale.
The optimal time for business succession
The optimal timing for business successions depends on the specific needs of the business and its owners. In general, it is recommended that succession planning should be begins a few years before the owner or key employees retire.
This leaves enough time to develop a succession plan, find and hire potential successors and ensure a smooth transition. Alternatively, to sell the company directly to a third party.
Financing business succession
Funding for this process can come from a variety of sources, including Banks, savings banks, venture capitalists, financial investors and government grants or guarantees. Entrepreneurs can not only turn to external investors, but also ask family members for help in raising the necessary capital.
To ensure a successful transition, it is important to plan ahead and know all the options available.
Common succession mistakes for businesses
To ensure that the transition goes smoothly, it is important to avoid mistakes. Here are some common mistakes entrepreneurs should avoid when planning for business succession:
- Planning in advance
Far too often, business owners wait until they are close to their desired retirement or are forced to do so by illness before thinking about succession planning. This can lead to problems as there may not be enough time to transfer ownership properly and ensure a smooth transition. Successful succession planning requires careful consideration of all aspects of the transition, including legal requirements, taxation and pensions. Planning ahead can help ensure that these issues are addressed in a timely manner. A sale under time pressure also depresses the price.
- No involvement of family members
Family members should be informed about all aspects and reasons for succession planning and involved in the process if possible. Not involving family members can lead to disagreements and confusion about who will take over the business when the current owner retires or dies. Involving family members early on can help avoid misunderstandings later on about the future management and ownership structure.
- Do not seek professional advice
Business owners should consult an experienced advisor before making important decisions related to their business succession. These professionals can provide valuable advice on asset protection, tax management, transfer of ownership and other important issues related to succession planning.
- Do not formulate clear expectations
When a business is transferred from one person to another, it is crucial that all parties involved have clearly defined expectations regarding roles and responsibilities in the new organisational structure after the transition. Without clearly defined expectations, conflicts can arise that can disrupt or delay the entire transition process.
- Ignoring potential risks
Entrepreneurs should also consider the potential risks associated with transferring ownership of their business ? risks such as loss of control over decision-making processes or potential disputes between family members over who will own what part of the business assets after the transfer is complete. By identifying potential risks related to their specific situation at an early stage, entrepreneurs can better prepare for and protect themselves against potential problems that may arise after the transfer. Similar concerns also need to be considered in relation to third parties.
In summary, it is important to ensure a successful and smooth transition from one management generation to the next in a company. carefully plan and implement.
By following our recommended five steps, you can ensure a successful business succession. With thoughtful planning, businesses can ensure that the company remains healthy for generations to come.