Challenge: Corporate Succession – 3 Focus Topics

Handing over the company, whether it is within the family (next generation), or outside (current management (MBO), new management (MBI), or an investor (sale)), is considered one of the hardest decisions within the lifetime of an entrepreneur. In this article we want to shed light on 3 focus areas in corporate succession management.

The Process

One of the biggest challenges lies at the beginning of the process. Many entrepreneurs simply do not deal with the topic in time (as underlined by a recent study by the Bavarian Ministry of Economic Affairs and Media, Energy and Technology called „Erhebung und Analyse zur Unternehmensnachfolge in Bayern“). Thus, a common mistake is not to plan early enough, as handing over a company takes time. Determining a just succession within the family, finding a successor, preparing company documents and numbers, determining the company value, as well as implementing the company handover is just a snapshot of the topics that need to be taken care of, which can take several months to years.

The Financials

Once the decision has been taken to develop a succession plan, taxes are usually high on the agenda. Especially if the company is to be transferred within the family, entrepreneurs are confronted with the question whether the tax burden can be paid, and/or whether the company can still be lead successfully even in the event of a tax relief, which often comes with obligations set by the government. Quite often it will occur that at this point a possible sale is being looked into.

If a handover outside the family is considered, two challenges should be highlighted. On the one hand, different expectations with respect to the purchase price can be expected. An emotionally influenced asking price is often met with a down to earth analysis by the investor. On the other hand, financing the purchase price can become quite a challenge for the overtaking party.

The Human Factor

Last but not least, the human factor plays a crucial role within all company succession procedures. The handover of one’s lifework is one of the hardest decisions within a professional lifetime of an entrepreneur. Quite frequently problems arise in the initial phase of the process because entrepreneurs cannot yet distance themselves from the business. However, once the succession plan is being implemented both parties have to be able to deal with change. The new owner has to exercise patience when it comes to implementing new ideas. At the same time, the former owner must learn to let go.

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