Succession planning: What you need to know

Sooner or later, every entrepreneur has to deal with succession planning. This not only involves a change of personnel at the top of the company, but also financial, tax and legal aspects. For you, we have summarized the most important aspects to pay attention to.

Succession planning is the preparation for replacing a job holder with another employee or an external candidate. The advantages of active succession planning are the reduction of personnel risks and filling positions with qualified specialists and managers. Succession planning should be tackled by entrepreneurs from around the age of 50, as most owners hand over their company between the ages of 55 and 65. However, surprisingly few owners have neither an emergency plan nor an advance care directive in case something happens to them. In this case, many companies are unable to act should the owner become temporarily or permanently incapacitated.

Those who tackle the succession planning project too late usually have to sell their life's work for less than it is worth and pay too much tax when the company is handed over. Sufficient time should also be planned at the personnel level to ensure that the generational transfer runs smoothly. It is not uncommon for the intended successor to turn out to be unsuitable or to back out. In this case, there should be enough time to find an alternative in good time. Even in the best-case scenario and if everything runs smoothly, companies need to plan for a generous handover period, as the successor is unlikely to want to be on their own from day one. One transitional option would be for the previous entrepreneur to assist as an advisor or board member, at least at the beginning. A staggered handover of the management role is ideal so that the successor has the opportunity to grow into the new role. During this time, the predecessor can also pass on their valuable knowledge to the successor. In this way, it is not lost and stability and continuity in the company are strengthened.

Entrepreneurs often tend to fixate on a single succession solution. However, it is quite possible that the preferred candidate will get cold feet shortly beforehand. In addition, the number of succession arrangements within the family is continuously decreasing, as the direct descendants often want to be independent and take a different career path. Nowadays, the majority of companies are therefore handed over to external successors. The main options for this approach are as follows:

• Sale to employees (management buy-out)
• Sale to another company
• Sale to external management personnel (management buy-in)
• Sale to an investor
• Initial public offering (IPO)

Entrepreneurs should carefully examine and assess which option is right for them, as each brings with it various opportunities but also risks. Long-term planning, usually over several years, minimizes the risk and impact of losing employees. Particularly as the current labour market is characterized by a shortage of skilled workers, the search for qualified employees is becoming increasingly difficult. It is therefore important to pursue a forward-looking and sustainable HR policy in the form of strategic succession planning. But what advantages does such planning actually offer?

• Maintaining core competencies for the long-term success of the company: By ensuring that important key positions and core competencies are retained, you also secure the long-term success of your company.
• Employer branding: Professional career planning, provided that you also communicate this to the outside world, increases your attractiveness as an employer.
• Reduction of know-how loss: Securing key positions with key qualifications helps to support the strategic direction of the company.
• Improve employee retention: Employee satisfaction, employee loyalty and employee motivation are promoted and improved through strategic succession planning.
• Minimization of the misplacement rate: By focusing on the internal labor market, wrong appointments are avoided as the successors know the company, the work processes, the culture, etc.

Many entrepreneurs set the value of their company too high, as they have put a lot of heart and soul into it and assume the resources they have invested over the years - namely time, money and effort. However, buyers do not pay for the emotional value of a company. Instead, they try to assess the opportunities and risks of a company and convert this into an appropriate purchase price. However, it is also not uncommon for company owners to underestimate the value of their company because they do not know where they stand with their business figures compared to the rest of the industry. Experience shows that overestimating the price can cause a succession to fail. It is therefore essential that entrepreneurs work with experienced specialists who can professionally value the company.

Most companies are not just a capital investment, but a life's work and represent sweat, blood and tears. Thanks to our many years of experience in business consulting, especially with Swiss SMEs, we offer a broad range of specialist knowledge and practical experience as well as a network covering all aspects of succession planning. We will be happy to advise you and support you throughout the entire process. Get in touch with us today, we look forward to talking to you.