Experiences from succession management…that make you think!

Are you 65 or older and have been wanting to hand over or sell your business for years?

Some quotes from affected entrepreneurs

“My successor is not tackling…” “I haven’t found a successor who still wants to do it…” “Who would want to buy such a business today…” “If I don’t find anyone, I’ll just close down…” “I have already had advisors from chambers there, but that didn’t help either…” “Advisors are only expensive and don’t bring anything…”

The problems of succession management

The quotations listed above are evidence of helplessness and reflect the problems that inevitably arise during a handover. Despite offers from chambers of commerce and independent consultants, many companies do not succeed in coming to grips with the handover in an orderly manner. But how can entrepreneurs then retire in an orderly manner, secure their pensions and preserve the company with the good name? Many entrepreneurs in Germany ask themselves these and similar questions every day!

As heard in various lectures and also from the Bavarian State Ministry, 12,000 companies with around 100,000 jobs are up for succession every year in Bavaria alone. Unfortunately, more and more companies are ultimately liquidated instead of being handed over to a successor. This is fatal for Germany as a business location. Accordingly, such closures also lead to the loss of jobs. Unfortunately, entrepreneurs start the handover far too late and often refuse professional help in the handover process. Although even the state government recommends:

“…For both players, the former owner and the successor, competent advice before and during the handover process is an important building block for success…”

and

“…should allow for a time frame of up to 5 years for the process of transferring the business…”.

Problems in the succession process

As a study by the University of Bayreuth shows, the following issues are decisive for problems in the succession process:

• 17 % of respondents testify to planning too late in the succession process
• 13 % make a poor selection and preparation of the successor
• 12 % misjudge the value of the company
• 12 % concern a failed financing of the takeover
• 8 % show a lack of motivation and qualification of the potential successor
• 7 % of entrepreneurs cannot let go

The harsh reality

The majority of entrepreneurs still bring their own tax advisor or auditor on board. However, many do not involve a professional advisor who takes care of the day-to-day business and the adherence to a handover plan. If one exists at all. This raises the question of whether the entrepreneur also seals his own tooth or performs the necessary heart surgery on himself?

In most cases, the life’s work of a successful founder is at stake. A reputable advisor can charge between 5,000 and 25,000 euros for an orderly handover – depending on the complexity of the situation – for the entire handover process for small and medium-sized enterprises. But sometimes the life’s work doesn’t seem to be worth that. It is preferable to buy a new car for 50,000 euros, which one would then like to take into retirement. However, this then usually also becomes a victim of liquidation.

Mr. Wanner on the subject of succession management

Although the above example sounds very unrealistic, this is the frightening reality. Mr. Wanner can confirm this based on his own daily counselling work. Unfortunately, he is usually only called to the “hard” cases where some “free” counsellors have already tried their hand at or people with unsuitable backgrounds. Or their own efforts have totally failed.

“… then getting the child out of the well again is a mix of diplomacy and expertise…”, says Wanner.

If discretion were not the most important asset in the consulting business, Wanner would probably have already written a book on the subject of succession management and told the – sometimes curious – stories of the companies. He likes to tell about entrepreneurs who don’t want to let go and don’t believe or trust the successors. Yet they, too, started out at some point with verve and their own ideas. And often with their predecessors shaking their heads. Moreover, some entrepreneurs regard their successors within the family as children instead of perceiving them as equal business partners.

This is usually one of the fundamental problems of the handover. The list of problem points would be very long and individual, says Wanner. That is why he also gives free lectures on the topic of succession management in which he passes on his knowledge. He is proud of every company he has been able to help pass on to the next generation. In summary, Wanner advises every entrepreneur to plan his or her succession just as carefully as founding a company.

References

Publication of the Bavarian State Ministry of Economic Affairs and Media, Energy and Technology: Unternehmensnachfolge in Bayern; Ein Leitfaden für die erfolgreiche Betriebsübergabe; www.stmwi.bayern.de Short study by the Betriebswirtschaftliches Forschungszentrum für Fragen der mittelständischen Wirtschaft e.V. at the University of Bayreuth based on a survey of experts.