Succession in small businesses

Company “Brandschutz Severin” successfully sold

Not only in Upper Bavaria do many small entrepreneurs ask themselves what they will do with their business when they reach retirement age. Often the companies are run well beyond retirement age or are simply closed down. Why is this?

When a small business owner looks at his sales and earnings at the end of the year, he usually finds that he can live very well on them. This raises the question of how a potential buyer can finance the costs of a purchase when the company is taken over. After all, he has to achieve a higher profit despite rather low turnover.

The problems with succession

According to Mr Wanner, this is the biggest obstacle for owners of this size of company to even think about looking for a successor externally. Yet the entrepreneurs usually have little knowledge of how to do this successfully. Typically, one sells one’s business only once in one’s business life. Thus, a family member or someone from the staff is usually chosen for the succession. The entrepreneur usually passes the company on to the successor free of charge or there is a transfer of assets such as machinery or vehicles. The value of the company itself is not taken into account.

As statistics from the Bavarian state government show, many companies are unfortunately liquidated as a result of such issues. Employees lose their jobs, customers lose their usual supplier or service provider and suppliers lose their turnover.

Founders ask for advice

Especially in these special times, one could assume that only a few entrepreneurs are interested in founding or taking over a company. Mr Wanner strongly disagrees: “In the last 12 months we have had an increase of about 80% in enquiries from founders. This is mainly about business referrals. However, many also ask for support in the preparation of business plans, financing or even, in general, accompaniment during the start-up process.”

Mr Wanner and his team give an interesting example of this. For example, the company “Brandschutz Severin” from Töging was successfully sold within only four months.

The special nature of the sale of a company in the case of small businesses

Small companies also require completely different sales strategies and valuation methods than medium-sized companies. These make up Wanner’s main business. In the case of small companies, it is not possible to determine the company value using valuation methods such as the multiple method or a capitalised earnings value method. Here Wanner has developed other methods. These are comprehensibly fair in practice for the acquirer and also the seller, says Mr Alexander Reberger of Wanner GmbH.

In the Severin case, Mr Wanner developed three alternative groups of buyers that could be reasonably considered:

• Founders
• Companies that would like to expand their business field
• Companies that are already active in this environment. In the end, these mainly take on the customers, employees and suppliers. In this way, they want to expand their reach.

The owner opted for the last option for this project. A company from the industry that made a quick and uncomplicated takeover possible due to the already existing know-how. Furthermore, the dedicated employees and the company name are retained and the customers are served professionally as before.