Handing a company over to the next generation is a huge challenge, which is why many business owners in Switzerland put their corporate succession planning on the back burner. However, because the process is so complex and time-consuming, Dr Frank Halter, a corporate succession planning expert, recommends addressing the issue in good time and provides some invaluable advice.
Corporate succession planning – the key things to consider
When should you start succession planning? What corporate succession options are available? And what are the things to bear in mind when handing your company over? Expert Dr Frank Halter answers the key questions on corporate succession planning.
Dr Frank Halter is the managing proprietor of “St. Galler Nachfolge” and a lecturer at the University of St. Gallen. In 2019, the expert on corporate succession planning launched an independent platform providing small and micro enterprises with free self-help support for succession planning.
When is corporate succession planning needed?
Corporate succession planning is always required – whether in relation to management or ownership. It ensures everything continues to run smoothly if the company’s owner or other key leadership figures depart in a planned manner or even unexpectedly. The key question is: “What would happen if...?” At a minimum, every company needs to have an emergency plan to ensure – to name one example – that wages continue to be paid. Contracts, signature regulations and securing of access are well advised. When planning to hand over your company, it’s also important to consider the period of time over which you’d like to cut back or depart.
What types of company handover are there?
Many business owners first consider the option of keeping the company in the family. If there are no valid candidates within the family, employees may be considered. When the company is sold to the existing management or long-serving employees, that’s known as a management buy-out (MBO). Team successions – where family members and employees share succession – are increasingly commonplace today. If there’s no feasible internal solution, a management buy-in (MBI) may be considered, depending on the sector. In such cases, the owner sells their company to a successor who doesn’t already work there. The buyer could be a private individual, another company or an investor. There’s a strong market, for example, for medical practices and pharmacies. But garages and restaurants or hotels can often be more difficult to sell. That’s why around 30 percent of smaller companies simply cease trading.
How long does corporate succession planning take, based on past experience?
The succession planning process takes 7 to 12 years on average at Swiss companies. Ensuring sufficient time creates optimal conditions for the seller, the buyer and the company itself – in other words, employees, customers and suppliers. Experience shows that succession within the family takes longer than an MBO or MBI. In current times, with the acute shortage of specialists, it’s wise to start planning as soon as valid candidates are available. This approach ensures that business owners find suitable successors, but also provides good employees with future prospects. Addressing this issue early on is also vital for business owners in terms of personal retirement planning. The more solid the owner’s private financial situation, the greater the room for manoeuvre during the handover.
Why does corporate succession planning take so much time?
Succession planning within the family or a management buy-out takes time, as the successors have to be shown the ropes and become acquainted with their future roles. Training or development measures may be needed. Knowledge has to be transferred and responsibility handed over. Acquiring the right skills is crucial, but the young successors have to learn to assert themselves and the previous owners to let go. The following questions may help: “Do I have a company or am I the company?”, “What does the company need?” and “What will I do with my time without the company?”.
What if you don’t have that much time (anymore)? Can the handover still be successful?
Transfer of ownership – especially management buy-ins – can be completed in six months if all parties are in agreement. But you should also consider whether the company could cope with radical change. In such situations, tacit knowledge falls by the wayside. Changing the corporate culture too abruptly can also have major implications. Problems often arise further down the line if key issues aren’t addressed during an accelerated process.
What challenges can emerge during succession planning?
As corporate succession planning takes a long time for Swiss companies and the world is in a constant state of flux, a plan B and plan C are required. You need to be aware that circumstances can change quickly – the intended successor could fall in love and move to the other side of the world, fall ill or leave the company. External events can also have an impact on sectors or even spell the end for a company. Asking the question “What would happen if...?” is vital in this context, too. Milestones have to be defined and decisions made. Commitment is one of the most important factors, as day-to-day business always takes priority.
How can potential candidates be found for corporate succession in Switzerland?
If there are no suitable successors within the family or company, recruitment agencies or companies such as Companymarket may be able to help. Bringing people together has great potential, but often proves unsuccessful. Key selection criteria include professional experience, knowledge, motivation, the drive to make a mark and willingness to take on responsibility. Business owners must dispense with the notion that successors need to operate in the same way and that the succession must be an immediate success.
What fears can arise over corporate succession planning?
Handing over your company means giving up control over it. When successors come from within the family, trust may exist, but there’s also the potential for past conflicts to resurface. Fairness is another issue. Nobody should feel treated unfairly. As corporate successions are one-off, highly complex events, many entrepreneurs have great respect for the process and are mindful of bad decision-making. What really matters is being true to yourself and seeking support if you need it.
What are the key things to consider when it comes to succession planning?
The path to the goal is highly individual and different for every process. That’s why a rigid checklist isn’t recommended. The “St. Galler Nachfolge” model can be used as a guideline. This conceptual framework enables corporate succession planning to be carried out in a structured way and be planned, organized and implemented successfully. It also helps to identify the often complex normative, strategic and operational issues that arise before, during and after the succession process so that they can be addressed and resolved in good time.
How do you determine the price for your company?
Succession planning can be a very emotional experience. Entrepreneurs often find it difficult to objectively assess their company’s market opportunities and value. Calculation methods as a decision-making basis can be found on the Swiss Confederation’s SME portal. However, the sale price isn’t generally the key factor in company handovers. Following your instincts and considering the good of the company are much more important.
What role do legal and tax aspects play in company handovers?
While the legal form is relevant, including from a tax perspective, it’s not all-important. The best approach is to first decide what you want and then to check whether it is feasible to implement succession planning in that way. External advisors, fiduciaries, financial institutes, tax experts and other specialist law firms can provide support.