Success factors in succession planning

Even the most successful entrepreneurs are not immune to the unexpected, such as serious illness or a serious accident. Incidents of this nature call for immediate action.

And even if it never comes to an unexpected handover: The sale of a company, a family buy-out or any other way of passing the baton is – for many, surprisingly – a long process. It is not easy to find a suitable successor and to execute a transaction successfully, and then there are the mandatory fiscal and legal aspects to consider.

Our experts offer the following advice, so that you can successfully hand over your life’s work – your company – at the right time:

Part of managing your company responsibly is to carefully draft business succession plans early on. This will ensure that the process goes through without a hitch when the time comes.

This may sound obvious, but at the same time it presents many entrepreneurs with an emotional challenge. It can be hard to part with the business that you have poured so much work, heart and soul into. Not least for this reason, the topic of succession is often ignored, forgotten about or put off for later. 

Stipulating responsibilities
But anyone who neglects succession planning exposes their company and their employees to a high level of risk. In the event of the owner’s unexpected death or serious illness, it falls to the family members and the employees to manage the company. Which is an extremely challenging task in the absence of clear instructions. In order to avoid this situation, one solution would be to appoint another person within the management early on who would take on the relevant responsibilities if needed.

Succession planning starts years before the sale
Good succession planning is worthwhile not only if you are faced with the worst-case scenario. A planned sale to a third party or a transfer within the family is also a much longer and more elaborate process than is often assumed. If changes in the legal structure of the company are necessary, for example, these often have to be initiated at least five years before the company is passed on, due to time periods stipulated by tax law. And a suitable group of buyers is not usually found overnight. If you want be able to sell your business on your desired terms, it is important to start succession planning years before the actual sale of your business.

Carefully examine all issues related to the succession, especially the operational business (distribution of business-relevant tasks, management structure, dependencies, timely financial reporting, digital documentation and so on), internal factors such as the company structure and strategy, personal preparation, and long-term profitability and development.

Our Succession Check helps you to evaluate where you still need to catch up in your planning.

Workable succession solutions are built on clear notions of the goals and future role of the entrepreneur’s family. The entrepreneur or their family would do well to make a considered decision as to what financial and non-material interests they want to set as the priority. A well-thought-through owner strategy not only helps with succession planning, it also gives the company a clear direction and the workforce a sense of security.

Learn here more about different owner strategies (in German).

Well-thought-out succession planning caters to both the interests of the SME with its workforce and those of the entrepreneur’s family. Balanced solutions emerge when financial and emotional interests are discussed objectively and conflicts within the family are settled amicably.

Discussions about the value of a company are often very emotional. After all, a company has a very special value for the person who built it from scratch or ran it for years. In fact, the value of your company is mainly determined by the earnings situation, i.e. the future freely available cash flow and the associated opportunities and risks. A buyer will only pay a price that can be justified and financed on the basis of their own future expectations and any synergies there may be. But it’s not just the condition and presentation of the company: Other crucial factors include the current market situation, the nature of the selling process (bilateral versus auction), and the selling strategy (buyer groups involved).

Asset management and provision for your retirement require a long-term perspective. So, begin early with investing your private assets in a risk-conscious and results-oriented manner, and separate them from your business assets. A well-thought-out succession plan within the family should also take into account that all beneficiaries of the inheritance are to be treated equally and paid out within the legally prescribed framework. 

Learn here why entrepreneurs should never underestimate the importance of private assets. 

We would be happy to show you from an interdisciplinary, holistic perspective what you should consider to ensure good succession planning, both as an individual and from a company perspective, and what the possible succession solutions are, based on your ideas and requirements. Depending on the path you decide to take, our specialists from Wealth Planning/Management (structuring of the transaction and the assets), Corporate Finance and M&A Advisory (search for a buyer and transaction consultancy) will support you in the planning and implementation. We advise you professionally and swiftly: We have a great deal of experience in all areas from a wide range of projects and client situations.