Career Succession planning: what you need to know

There are good reasons for dealing with company succession early on.

09 Jul 2020
As a family member, have your say in succession planning.

Every 10th Swiss SME has difficulty finding a suitable successor (bisnode D&B, 2019). The consequences can often be severe, even reaching as far as liquidation. However, it isn’t only the owner who is affected by the question of succession. What if you as their partner suddenly have to manage the company? Or if, as a daughter, you have to help decide on a succession?

Whether you are the owner, partner or potential successor to the company, it’s worth dealing with the issue of company succession at an early stage, so you can understand and weigh up the various options. A family-owned business should be passed on and continue to prosper within the family, including after retirement or in the event of an unforeseen event. If you are taking over or founding a company, you’ll need to get to grips with these issues early on.

Deal with financial, legal and emotional aspects at an early stage

“Think early about what comes later” is the motto for business succession. After all, woman entrepreneurs who deal with business succession at an early stage also have the freedom to help shape the succession to suit their needs. For the entrepreneur passing on the company, doing so successfully means not only correct planning in financial and legal terms, but also making the woman successor ready for the takeover – the more time there is for this, the higher the chances of a successful transfer.

The emotional aspects of handing over companies for woman entrepreneurs, successors and their families should also not be forgotten. What will it mean for my assets and my future if my husband or partner gives up their company? What should I do if my father wants to hand over his business to another family member? How am I involved in succession planning as a daughter?

The following are your options for succession planning

Those who are directly or indirectly affected by succession planning should understand the different options. There are generally three options for succession planning:

Within the family: family buyout (FBO)

Many entrepreneurs want their company to remain in the family. Family succession is the most frequently chosen successor option and it offers some advantages: Family members are usually more connected to the company, understand the company, its history and culture particularly well, and know how the owner would want it to be run in future. Within the family, the transfer of knowledge is often easier to ensure, the financing options are more flexible and the company does not end up in the hands of external buyers. This is particularly important to a lot of woman entrepreneurs. After all, you or your partner built the company up with the idea of offering your children more opportunities. You want subsequent generations to continue the business with the same commitment and passion as you have. However, a family buyout often takes longer than other types of transfer and can involve many emotional and inheritance-related challenges.

If a company is transferred to the next generation, this must be communicated clearly. All stakeholders (including children who are not taking on the business) should be involved on an equal footing, and the future roles and objectives of all family members should be clarified. More tips on Family Buy-Out can be found in our interview with Alexandre Prêtre, Head Corporate & Institutional Clients Region Geneva.

Transfer to employees: management buyout (MBO)

Only very few Swiss companies are passed on to employees. Why is this? Not every company has employees with the necessary combination of know-how, entrepreneurial spirit and sufficient financial resources. Taking over a company as an employee also means assuming a new role – towards suppliers, customers and partners, and towards former work colleagues.

Like an FBO, an MBO also has advantages: employees know a company better than external buyers. Owners, in turn, know the employees and know that they can trust them. Knowledge can be passed on years before the handover and, last but not least, it is ensured that internal company information does not fall into the hands of third parties.

From the point of view of the “selling” company, however, an MBO also means that the highest price is not normally achieved. Rather, the focus is on ensuring the long-term financial security of the owner to the benefit of the business being handed over. However, the difference between the purchase price and the market value should not be too high.

The process for transfer to employees is generally shorter than a succession within a family, but longer than when selling to third parties.

Fascinating insights and interviews with entrepreneurs who have opted for an MBO can be found here.

Transfer to third parties: management buy-in (MBI)

The right successor cannot always be found within the family. In this case, the company will need to be passed on to a third party. The obvious advantage here is that by selling externally, woman entrepreneurs will generally achieve a significantly higher price and – at eighteen months to two years – the whole process will be considerably shorter than with an FBO or MBO. Another advantage is that third parties often bring in new ideas and are more willing to try out new things than existing employees or family members.

But an MBI can also be risky because ensuring the transfer of knowledge to third parties is a difficult undertaking. The purchaser must get to know the company, its culture and employees, and gain their confidence and trust. The emotional effects of a sale to outsiders should also not be forgotten: transferring one’s life work to strangers can be very stressful and emotionally upsetting.

As a family member, have your say in succession

In addition to the question of the appropriate successor, the transfer also has other aspects that should be taken into account. Depending on the type of succession, succession planning has a major impact on your own wealth or inheritance. Regardless of which form of succession is chosen, entrepreneur couples should discuss succession early, openly and honestly, including with their family. This is the only way that the handover and its financial and emotional effects can be planned intelligently and in good time.

Which solution best suits you and your company? Take our succession check.

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