If the owner leaves the company, this can threaten its very existence. Succession planning is also a process that has an impact on everyone involved with the company – including the owner’s family, the workforce, customers and suppliers. Planning is vitally important. Corporate succession is a challenging strategic management task which you should address in good time and dedicate sufficient time to. Successful succession planning usually takes several years. The earlier you start, the more leeway you’ll have. However, there’s not usually a universal solution as the context is unique in each instance.
How to deal with succession planning at your company
One in five SMEs in Switzerland faces the challenge of dealing with corporate succession. And almost one in three SMEs disappear due to failure to resolve the issue of succession planning. We show you how to successfully resolve the issue of succession planning at your company in good time.
What options are available for succession planning?
Most entrepreneurs prefer their children to take over from them. But sometimes the next generation doesn’t want to take over the business (yet) or there are no suitable candidates. This means you need to consider various scenarios and should not become set on a preconceived solution. It’s rarely absolutely certain that such solutions can be implemented successfully in any case. If you’re looking to hand over your company, the following options are available – from choosing a successor within the family to selling the business.
- The family succession solution is known as the family buy-out (FBO). This involves selling or handing over the business to one or more persons in the owner’s family.
- A management buy-out (MBO) is where you sell your company to (senior) management or employees already working for you.
- If you sell the company to persons from outside, this is known as a management buy-in (MBI).
- If you launch your company on the stock market, this is referred to as an initial public offering (IPO). This solution is extremely demanding and complex and has far-reaching consequences. This means it is only a suitable option for companies with a very specific profile, that possess growth potential and which can attract interest from the public and business world.
- Finally, there’s also the possibility of selling your company to another company – for example, a competitor in the same sector.
The best option for you depends heavily on the objectives that you or your buyer have set.
Plan the scenarios accordingly, as every type of takeover is subject to different procedural requirements in Switzerland. It’s therefore vitally important that you are fully informed and it may even be worth employing someone to support you in this process.
What to bear in mind when planning succession within the family
People have different ideas about succession planning in most families. Some may want to sell the company to an external party, others insist on keeping the company within the family, while for some entrepreneurs the money from the sale takes top priority. Obviously, one or more persons from within the owner’s family – who actually want and are capable of taking over the company – have to be found first of all. It’s important to gradually introduce your successor to their role in the company by adopting a long-term perspective. On the other hand, you may also have to deal with the inheritance claims of other children. In the case of a private limited company, this issue could be resolved through minority interests, for example.The distribution should be fair and in the interests of the family and the company. Make sure that nobody feels unfairly treated. The conflicts this can cause may put strain on the company and family for years to come and poison the atmosphere.
Regardless of which type of succession you opt for, tax aspects, which should be taken into account when making your decision, are also an important part of successful implementation. A mediator can also help to get everyone around the table and to reconcile different interests.
How to prepare your company for succession
Various instruments help you to successfully organize your succession planning. We outline the most important of them here:
- You can regulate the relationship between various owners of a private limited company with a shareholder agreement to avoid any disputes. This covers purchase rights and forms of voting, for instance.
- You can determine what stake a spouse should receive in the company in the event of death or a divorce in a marriage contract.
- Inheritance contracts govern what happens to the company if the owner dies – the inheritance contract covers both children and spouse.
- In contrast to an inheritance contract, a will is arranged unilaterally by the testator, but also governs what happens to the business owner’s assets and company.
- In a family constitution or family charter, the entrepreneur’s family sets out values, objectives and roles concerning the joint company which are morally, but not legally binding. It can form the basis for binding contracts. Further information on the The link will open in a new window charter (in German) can be found on federal government’s SME website.
Organize your company’s succession at an early stage. This will establish clarity and certainty – which will ultimately benefit both you and the company. By taking account of the various aspects of succession planning, you can ensure a cordial transition.