Often put off for years as a supposed sign of weakness, it frequently takes a trigger to prompt a serious examination of the issue of “succession.” Economic changes, personal tragedies, or examples of successful succession planning in one’s immediate circle prompt a shift in thinking. But why must there first be a specific positive or negative event for this issue—arguably the most important one for the company’s continued existence—to gain the significance it deserves?
Fortunately, business succession has gained significant public attention in recent years. In addition to rising demand, this has been driven by the professionalization of the entire succession process and the growing number of investors specializing in succession. Once the topic is “in vogue,” many business owners find it easier to address it. The question of the right timing and the right approach then quickly arises. We deliberately avoid using the term “optimal.” Before and during the process, certain conditions should be met; above all, however, it must also “feel right.” Whether everything was optimal becomes clear—if at all—only in hindsight.
In addition to the company valuation, tax considerations and the company’s transferability also influence the right timing. As a product of a factor reflecting the company’s risks and opportunities combined with its earnings, the company’s value is traditionally directly dependent on the timing. For partnerships (including GmbH & Co. KG), for example, reaching the age of 55 results in preferential tax rates for the capital gain from the sale.
Furthermore, fully utilizing tax advantages when selling GmbH shares acquired through a contribution requires the expiration of minimum holding periods or lock-up periods. If the business owner has failed in the past to disentangle dependencies on their own person, this not only leads to significant valuation discounts but also frequently results in the failure of the transaction.
As a result, selling a business turns out to be significantly more complex than many business owners expect. This is where expertise is needed. In addition to a long-standing, trusted tax advisor, a reputable M&A advisory firm can be a valuable resource for an initial assessment. It is important that the assessment be honest and realistic, rather than driven by the desire to close a deal quickly. References, evaluations, or personal recommendations often provide the necessary transparency. A good M&A advisor is always closely attuned to the market—especially right now—and is always able to significantly reduce the complexity of the process. If there’s something they don’t know, they bring tax advisors or attorneys on board.
Once contact has been established with the advisor, the next step is to work through a checklist together. In addition to the points already mentioned, a crucial factor in the assessment is the company’s financial history and future prospects. In many cases, efforts to maximize earnings in the run-up to a potential sale involve foregoing investments that are sometimes necessary or making other short-term cost-cutting measures that negatively impact the company’s long-term competitiveness.
Nowadays, it is virtually certain that a prospective buyer, with the support of appropriate advisors, will be able to identify such effects with ease. Such an approach is therefore strongly discouraged. A competent advisor will always advise their client to continue running the company as if it were not for sale. If the past few years have been profitable even without “accounting window dressing” and the coming years also look promising, there is nothing standing in the way of checking this box at this stage.
If the tax (e.g., business spin-offs) and legal (e.g., permits, employment contracts, customer contracts) aspects are also “in order,” then nothing really stands in the way of the sale process. Actually? What is essential and decisive is that the entrepreneur is emotionally prepared for the process. Does he have a plan for life after entrepreneurship?
In summary, this is an interdisciplinary process in which the entrepreneur shouldn’t be too proud to ask for help.
