International studies show that business succession in Germany is initiated five to eight years later than in many other European countries. The main reason for this is the owner’s inability to let go.
A real-world example: After a significant decline in revenue over several months, the senior partner of what had been a very successful company until then was ready to undergo an external analysis. His final decision as an entrepreneur was to ensure a successful succession plan.
The decline in revenue could be explained by the suspension of orders from the company’s largest customer. The customer’s new corporate policy required all major suppliers to demonstrate sound corporate governance, which the senior owner had failed to do. In this context, the management team appointed for the project examined all departments of the company for potential weaknesses. In addition, the team calculated the costs for resolving bottlenecks and for “window dressing.”
The following was determined: The chances of regaining orders from the former major customer were very good; new orders from a robotics company were on the horizon with the purchase of two new CNC machines; and two additional employees were hired. The short-term cost was estimated at just under 200,000 euros per year, including the leasing costs for the new CNC machines. Due to very conservative profit withdrawals in the past, there was sufficient liquidity available.
First, the management consultant conducted an initial business valuation; he then identified potential buyers through various channels. The most promising candidate emerged from a contact generated via an online platform: a foreign entrepreneur. Discussions with him and with the financing commercial bank went well, and a date for the start of the “due diligence discussions” was set immediately.
At the follow-up meeting, the purchase agreement was finalized. It stipulated that the managing directors would remain employed and that the senior partner would continue in an advisory capacity for at least one year. Particularly encouraging: The company was not broken up, and the approximately 45 jobs at the Rhine-Main location were preserved.
8 Success Factors for Implementing Succession
The senior partner’s clear willingness to step down
Clear project management involving key decision-makers
Involvement of additional experts for specific tasks
Timely preparation of a business valuation
Strict confidentiality regarding the project
Verifying the financial viability of the project for selected prospective buyers
Clearly agree on the terms for the project handover
Communicating the successful business succession appropriately
