More than 50,000 small and medium-sized enterprises are set to be handed over by 2025
Approximately 60 percent of all employees in Germany work for small and medium-sized enterprises, many of them in so-called family-owned businesses, which include not only countless small and medium-sized enterprises but also three-quarters of all global market leaders. According to the latest estimates from the IfM Bonn, 150,000 family-owned businesses are set to be handed over by 2022. About one-third have not yet taken any steps toward succession planning or have only taken vague initial steps. In just over half of these succession cases, a solution is found within the family.
For the remaining business transfers planned to be handled externally, there is an alarmingly small pool of potential buyers to choose from. This number has now dropped to fewer than 60,000. To counteract this imbalance, a methodical approach by HR consulting firms is needed to identify, qualify, and recruit suitable successors. Succession consultants must rise to this challenge while also guiding suitable new entrepreneurs through the succession process.
Business Analysis as the Path to a Tailored Succession Plan
In addition to their trusted tax advisor, business owners now need another partner on their team. In addition to professional expertise and experience in the areas of succession, business valuation, and business development, this partner must, above all, speak the business owner’s language and know and understand their challenges.
Only on this basis can an analysis of the business be conducted that goes beyond mere numbers. From this, strategic options are developed, solution scenarios are explored, and ultimately the ideal solution for all parties involved is identified and its implementation supported. Throughout the entire process, it is advisable to draw on the support of a network of experts and partners. Successful succession advisors take a holistic and interdisciplinary approach to planning leadership succession.
As a rule, they have their own long-standing experience as entrepreneurs, HR professionals, or succession consultants. This group of experts attaches sufficient importance to the emotional and irrational factors, as well as to the systemic and process-oriented nature of business succession. In terms of implementation, this means: The process begins with a comprehensive assessment of company- and person-related factors and perspectives. Once a scenario has been developed, the next step is to use the “Active Search” recruiting methodology to identify, evaluate, and recruit potential successors.
Assessing Successors Accurately
Assessing a successor’s entrepreneurial competence is a complex task. Nevertheless, experience shows that this assessment is based almost exclusively on gut feeling and the entrepreneur’s own perception of themselves as the company’s leader. To safeguard the company, however, it is absolutely essential to take an analytical and methodical approach in order to enable a sustainable assessment of the successor.
On the one hand, this involves relying on traditional documents (resumes, diplomas, references, performance reviews, proof of equity, etc.) that qualify potential successors. On the other hand, new, comprehensive, and formalized models are increasingly being used to assess the “entrepreneurial personality” factor. In family-owned businesses in particular, there is a complex interdependence between the family and the company on the one hand, and between the owners and executives on the other, which significantly complicates the planning of leadership succession and must therefore be a key consideration in the successor’s profile.
Turning the Designated Successor into a Successful, Real-Life Successor
Once a decision has been made regarding the appropriate successor, aletter of intent is agreed upon between the parties, which should include the key points of the subsequent purchase agreement. Preparing an up-to-date business plan and conducting a thorough due diligence review are essential tasks for the successor during the transaction. In addition, the succession advisor must possess a solid understanding of the various options for financing structures, business valuations, financial statement preparation, and tax issues.
The subsequent negotiation process must be structured in detail and implemented consistently. During the transition period, ongoing, systematic, and continuous coaching, as well as targeted training, are often essential to transform the designated successor into a “true” successor.
Conclusion
The professional, comprehensive, and complex planning, support, and management of the structured succession process—and thus the company’s transition to the next generation—will significantly determine its future success or failure. In this context, issues traditionally associated with HR consulting—such as identifying the right successor—are becoming increasingly critical to the success of the succession consultant.
