Succession planning

Stumbling blocks on the way to company succession:

  1. What are the basic requirements for a successful company succession?
  2. How can you make your company fit for the transition?
  3. How can your successor finance the acquisition?
  4. How do you prepare staff, customers and suppliers for your succession?

What are the basic requirements for successful company succession?

Many SMEs face being handed over from one generation to another. As well as the emotional aspects, the succession plan must always seek to clarify crucial questions in good time. The basic requirement for successful company succession is the will and the readiness to hand over one's life's work.

The right moment for the handover must be well planned. After all, if succession is rushed, the vendor tends to be in a weaker position. This ultimately impacts on the sale price. Once the decision has been taken, a detailed timetable helps to ensure a smooth transition.

How can you make your company fit for the transition?

Legacy burdens, opaque cost structures, personnel gaps in management and retained earnings are considerable obstacles on the way to company succession. Dealing with these is the first priority.

The proprietor often views the company as a personal pension. It must be borne in mind that, in the case of a limited liability company, high equity capital raises the price. Dividend payments, tax-free nominal value reductions or repayments from the capital contribution reserve can help to reduce the equity value.

The tax structuring should be carefully considered bearing in mind the individual needs of the succession planning as well as of the national tax regulations. Thus, a possible change of legal form prior to the transaction must comply with certain deadlines. It's all the more important, then, that the company is adequately prepared in every respect for the generational transition.

How can your successor finance the acquisition?

A systematic analysis of the strengths and weaknesses as well as the value of the company is of crucial importance. With respect to company valuation, various models are applied. It is to be noted that the owner also represents a key, albeit non-measurable, asset. His or her knowledge as well as his or her relationships with customers and suppliers will have to be replaced.

Often, the prospective successor depends on debt finance from banks. The debt and debt interest arising from that must be refinanced with future cash flows. In order to secure finance from the bank, a reliable and credible business plan must be in place before the transition.

How do you prepare staff, customers and suppliers for your succession?

During preparation and negotiations for the sale, confidentiality is important as rumours lead to uncertainty among staff, customers and suppliers alike. In parallel with the preparation for the sale, communication with regard to the announcement of the succession must be planned in good time. Key decision-makers should be included in the process as early as possible, as otherwise there is a risk that staff, customers and suppliers may rebound their long-standing relationship.

The successor needs time to find his or her feet in the job and to build up expertise. For this reason, the operational transition should be done in phases and these specified in the contract. In a limited liability company, the vendor can continue to exercise influence and provide guidance as a non-executive member of the supervisory board. This also sends a positive signal and helps to ensure a smooth and successful transition.

 

If a feasible solution within your family is not available, the succession plan is often delayed or remains unresolved. A successful succession plan takes into account the preservation of your lifetime achievement, your personal wealth and peace within the family but also the needs and interests of other stakeholders of your company.

We lighten this task for you and lead you through a systematic analysis of the current situation of your company. This process allows us to create a detailed valuation of your company for future negotiations, may it be for the selling of shares or hereditary title.

We advise you professionally through your own succession planning and are at your disposal during the entire process. 


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