Reason 1: The race to find successors has begun
One in four owners of a skilled trades business is already over 60, and one-third of business owners plan to hand over their business or close it within the next five years (see ZDH 2021). In total, the ZDH estimates that 125,000 businesses are set to be handed over in the next five years.
On the supply side, there are only 19,534 master craftsman graduates across all trades (see ZDH 2022). This means that even if all master craftsman graduates over the next five years were to become self-employed immediately, there would still be a shortfall. However, the biennial graduate study conducted by the Research Institute for Vocational Training in the Skilled Trades further highlights that only about 30% actually become self-employed within 3–4 years of graduation (Rasch 2022). In addition, the majority would rather start a new business than take over an existing one. In plain language, this means that in the future, many business owners will be competing for successors—just as they are currently competing for skilled workers. It is therefore hardly surprising that, from the business owners’ perspective, “finding a successor” is the biggest problem—even more so than determining the purchase price and dealing with tax issues.
Business owners who do not yet have a designated successor within the family, a buyer among their employees, or an external buyer are therefore well advised to begin thinking strategically about their succession early on—ideally with support.
Reason 2: Developing a successor takes time and special focus
Successors can be family members, employees, or external candidates who join the business. If they are to continue running the business, they ideally grow into the role of owner. A development process thus takes place. A successful development process is an educational endeavor and requires analyzing and understanding the starting point of the person being developed, and then guiding them along a path toward the desired level of development.
Perhaps it isn’t so easy in your business to find an employee who can follow in your footsteps. This means you may have to train and develop a successor from the ground up until they are ready to take over from you. There are several uncertainties along the way that may well require delays or a fresh start. The successor first goes through various career stages until the handover is possible (see Figure 1).
Figure 1: Decision Points on the Path to Self-Employment
Added to this is the factor of entrepreneurial personality. Findings from graduate studies and qualitative interviews show that there are three types of master craftsman graduates with potential:
The Determined: This group is determined to become self-employed early on and primarily needs support in overcoming initial challenges.
The Undecided: They do not rule out self-employment, but have significant concerns about it (income uncertainty, lack of work-life balance), which must be addressed with positive examples. In practical terms, this means you can only convince them if, as an entrepreneur, you demonstrate that these concerns do not apply to your business.
The Insecure: This group does not (yet) feel confident enough to take on self-employment with its associated uncertainties and responsibilities. However, there are many examples where people who were initially uncertain have grown into the role over time and eventually became successors. Selecting and developing people requires one thing above all else: time.
Reason 3: Changing business processes takes time
In many businesses, the operational value chain is heavily dependent on the owner. In some cases, there are neither clear process descriptions nor job profiles and structures. This poses a problem for a business transition. If the know-how for delivering services resides solely in the mind of the current owner, if customers trust only the current owner personally (sales), and if all other decisions (e.g., preparing quotes, orders, marketing) can only be made by the owner, then the business is not truly ready for a handover and is not attractive to successors.
Designing structures, establishing management levels where necessary, defining responsibilities in job descriptions, creating clear workflows, and formulating process instructions—all of these are tasks that also take time. They also involve ensuring that employees are brought along and developed so that they can take on these responsibilities.
Reason 4: Changes to the business lead to greater satisfaction
Many business owners complain that they are overburdened with work and have no time for extended vacations, family, or leisure. Strategic issues within the business—such as employee development, digitalization, and innovation—then fall by the wayside. Addressing precisely these issues means creating more freedom for yourself in the long term. This requires business owners to evolve from skilled professionals into entrepreneurs in their own right. This is akin to a career change. However, it can be worthwhile because: Once processes are established and employees have developed to the point where they can take on responsibility, the owner gains more freedom. The business will then run even without them. This does, however, require a willingness to grow. After all, this won’t work as a one-person operation or a microbusiness, because the owner’s own labor is indispensable for delivering services. With 3 employees, the owner accounts for 25% of the business’s total workforce; with 19 employees, just 5%.
Reason 5: The value of the business increases
Last but not least, this further development of the business also pays off when it comes to the purchase price. The Association of Business Consultants for Valuation in the Skilled Trades takes into account, in particular, the degree of dependence on specific individuals, the employment structure, and the business’s equipment when assessing risk as part of their valuation criteria. So the more the business is already operating independently of the owner, the more likely you are to see demand and a purchase price that align with your expectations.
Tip: The business consultants at the Chamber of Skilled Trades are available to assist with determining a potential price.
Conclusion and Call to Action
Many business owners wish to see their life’s work continue—whether out of pride in their achievements, a sense of responsibility toward their employees, or a commitment to their customers. To ensure this succeeds, you shouldn’t wait until the handover is imminent. You need a clear vision of to whom and in what condition you’d like to hand over your life’s work—your business—as well as clarity regarding the implementation plan.
Are you a business owner or a business successor in the skilled trades and would like to talk to me about your successfully completed or ongoing handover or takeover?
In fact, we at the FBH are currently conducting a research project on business transfer processes and are seeking interview participants who would like to reflect on their individual development processes and support needs in a conversation. Please feel free to contact us at rolf.rehbold@uni-koeln.de.
Sources:
Rasch, K.: 2021 Master Craftsman Graduates Study—Results from Four Federal States. From the series: Workbooks on Vocational and Economic Education Research. Issue A56. Cologne 2022.
Rehbold, R. R.: Being an Entrepreneur – Subjective Perceptions of Entrepreneurship in the Skilled Trades as a Starting Point for Support and Promotion. In: Friedl, Gunther / Glasl, Markus / Tratt, Benedikt (2021): Self-Employment in the Skilled Trades, Munich 2021. Available for download on the Ludwig-Fröhler-Institut website at: lfi-muenchen.de/wp-content/uploads/2021/11/Sammelband-Gemeinschaftsprojekt-Selbstaendigkeit-im-Handwerk_Friedl_Glasl_Tratt_LFI_Muenchen.pdf
German Confederation of Skilled Crafts (ZDH 2021): Business Succession in the Skilled Trades. Results of a Survey of Skilled Trades Businesses in the Third Quarter of 2020. Berlin 2021.
German Confederation of Skilled Crafts (ZDH 2022): Overview of Trends in Master Craftsman Examination Pass Rates. Available online at: www.zdh-statistik.de/application/index.php. Accessed July 5, 2022. Berlin 2022.
