After me, the deluge? Succession is under serious threat in many small and medium-sized enterprises
Many small and medium-sized enterprises are facing the challenge of business succession—the need to pass the baton to a suitable successor. However, for various reasons, internal succession by a daughter, son, or other close relatives is not always possible or feasible. The Institute for SME Research in Bonn estimates that currently about 30,000 companies each year are faced with the following questions: Who will run the business in the future? What will happen to the company? Are jobs at risk?
Alternatives for companies that cannot find a successor within their family
The company has decided to hand over the business to one of its own employees through internal succession. This should be planned well in advance to ensure that the selected employee is well prepared for managing the business and leading the company. Currently, this occurs in about one out of every five business succession cases.
The company recruits employees from other companies who are suitable for the succession.
In one out of every three cases in Germany, the company will consider an external succession and sell the business to another firm.
Many state legislators in the federal states would like to use incentives to promote internal succession more strongly. However, it is currently assumed that there are many companies and employees for whom such a business succession cannot be achieved for various reasons. In such cases, providing incentives would likely be the wrong approach.
On the other hand, according to Dr. Nadine Schlömer-Laufen, selling the company as a form of external succession only makes financial sense and has a chance of success if the acquiring company can gain competitive advantages in the market through the purchase. This can also occur when these new companies seek to secure market entry through the acquisition. As a succession solution, this option should be the best—and likely the most lucrative—for those seeking a successor.
When it comes to the company’s own employees, it often takes a relatively significant effort to convince them of the merits of business succession. In most cases, they are not convinced from the outset that they want to become entrepreneurs, as they fear for their livelihoods, financial loss, and liability risks in this context. However, the chances of an employee becoming the successor increase if no suitable buyer can be found to purchase the company. Furthermore, many former owners view a takeover by their own employees as a way to secure the company’s future and preserve jobs. A sale to an external company is then not considered.
Dr. Nadine Schlömer-Laufen views succession planning through an employee from within the company’s own ranks as the ideal solution offering the greatest opportunities for the retiring entrepreneur, the company, and the employees. She bases her view on the fact that the employee already possesses detailed knowledge of the company, its goals, its financial situation, and its workforce. The employee is therefore best positioned to assess the risks to both capital and the workforce. A fair price for the company is therefore clearly understandable to them.
With this succession plan, the entrepreneur achieves a good sale price and can prepare the succession plan with a high degree of confidentiality. This helps rule out and prevent widespread unrest among the company’s own staff, customers, and business partners. This is because external succession in particular often carries the risk that employees and outsiders will receive information that could lead to uncertainty.
