Procedure and phases of business succession
Company succession can be divided into several phases. Firstly, there is the phase of information and stocktaking, in which preparatory measures are taken and the opportunities and risks of a succession arrangement are assessed.
This phase is followed by the analysis and strategy phase, in which the entrepreneur and successor carry out situation analyses.
The concept and business plan phase comprises the development of a succession concept and the planning of further measures, for example on tax or legal aspects.
The implementation and transfer phase deals with the implementation of predefined steps, which significantly includes the transfer of ownership.
The often-overlooked final phase of departure and life after transfer deals with aspects related to the entry of the new entrepreneur and exit of the departing entrepreneur.
Procedure and phases at a glance:
To prepare a company succession, a transferor must clarify the entrepreneurial and personal goals associated with the company succession, in addition to clarifying the personal readiness to hand over the company. In addition, the company must be checked to ensure that it can be handed over, so that the successor can basically continue the company successfully. This also includes considering a documented contingency plan that can maintain the stability of the business in times of crisis.
The successor should be aware of the individual motivation and define a clear goal in taking over the company. In addition, a preparatory check must be made to determine the extent to which the successor is up to the demands of the business in terms of technical and commercial skills. Any gaps in knowledge should be closed through further training measures. If several successors take over together, it is important that they find a consensus for their ideas and future cooperation. At the end of the stocktaking process, the interests, and ideas of all those involved must be reconciled. Potential conflicts and problems should also be addressed in the process.
Entrepreneurs and successors determine the timing of the business handover. Often, the succession process extends over a period of at least two to five years, occasionally longer. The entrepreneur should also clarify the financial requirements for the period after the business is exited. Successors should also already examine the company more closely to better assess whether they really want to take on the succession for the company. To do this, it is essential to take potential risk factors into account. For example, if the entrepreneur is not willing to "let go," this could influence his or her purchase price expectations.
From the successor's point of view, it is advisable to take up and evaluate the relevant risks at an early stage. If the assessment is in favor of the takeover, it is advisable, among other things, to specify a time for the takeover with the entrepreneur. In contrast to internal and external successors, a successor within the family often benefits not only financially but also from non-material advantages such as the transfer of knowledge from the entrepreneurial family.
Linked to the planning of individual financial needs, it is important for the entrepreneur to determine the appropriate form of transfer. In addition to the transfer of management responsibility, the entrepreneurial assets can also be transferred. There are basically three ways to do this:
- gratuitously, through a gift or inheritance,
- for a consideration, through the sale of the company,
- or by separating ownership and management if decisions are to be delayed or a complete transfer of ownership is to be avoided.
The forms of transfer vary with the type of succession. In the case of in-house or external takeovers, entrepreneurs usually put a price on the market for the acquisition of the entrepreneur. In contrast, the business is often given away to a successor within the family. The form of transfer plays an essential role in the succession process and should receive significant attention so that the succession process does not fail due to price issues. Numerous legal and tax aspects are also linked to the form of transfer.
During the conception phase, the successor should already think intensively about securing the sustainable success of the company. This includes the further development of the corporate strategy. Since in-house and external successors are subject to the payment of a purchase price, options for financing the takeover project should also be discussed.
The planning of the steps for successful company succession should be concretized by the entrepreneur and successor at an early stage.
There is a time lag between the implementation and the execution of the transfer of ownership. Family and in-house successors should work on understanding the new role in the company, especially key stakeholders inside as well as outside the company.
For business owners and successors, it is important to figure out the most appropriate way to communicate the succession to employees and business partners. For example, is there a major event or are suppliers or customers visited personally? Apart from the actual transfer of management responsibility and assets, it is crucial to ensure that employees critical to the company's success do not leave the company.
The purpose of securing key personnel is to ensure that the company can continue to enjoy success soon without losing key resources due to the change of entrepreneur.
Often, people involved in a business succession consider the succession process to be over as soon as the ownership shares have been transferred. However, there are numerous stumbling blocks for the successor, because now the operational work is only just beginning.
The ex-entrepreneur also faces new challenges, particularly in the private sphere. Taking personal life planning into account at an early stage helps both the entrepreneur and the successor to avoid any surprises and to clearly define his or her further role in the company. Continuing to accompany or even influence business activities and management processes for years usually has a counterproductive effect.
The former entrepreneur should devote himself to new activities, which he had postponed for decades for operational reasons, for example.
We support you actively and in an advisory capacity in the process of succession planning and are the trustworthy partner by your side. Are you thinking about finding a successor for your company? Then please contact us - by mail or telephone. We guarantee you the highest degree of discretion and look forward to getting to know you and your goals.