Many company leaders stay at the helm significantly longer than originally planned. Some do so because they still enjoy their role, but more often than not, there simply isn't a suitable successor in sight.
Why do so many companies struggle to arrange for succession?
The fundamental problem: There's a lack of successors.
There are several reasons for this:
- The baby boomer generation, which is retiring in the next 10 to 15 years, is followed by significantly smaller cohorts. So, there is simply a shortage of (succession) successors for this reason alone.
- Another reason: The succession gap also arises from a decreased interest in starting new businesses over the years. The job market offers many attractive employment opportunities that many people prefer over self-employment.
- Moreover, only four out of ten companies are now passed on within the family, either because there are no descendants or because children and grandchildren have different career aspirations and ideas than entering the family business.
- Another crucial point: Entrepreneurs often demand an inflated purchase price. Naturally, they want their life's work to be valued and also secure a good retirement income – but for potential buyers, only the profitability of the company counts.
- Additionally, as owners age, particularly in smaller companies, investments are often reduced or the customer base has "aged along with them" and is now at risk of dwindling. This does not necessarily make a company more attractive.
- The financing needs and thus, of course, the concerns about financial risks are disproportionately large for potential successors.
(See also KfW Research, Economic Focus from 02.06.2022: "Three quarters of SMEs see a lack of successors as a problem – danger of involuntary closures")
Why could business succession be interesting for you as an entrepreneur?
Among other reasons:
- Typically, you take over a well-performing business (Important: Have the actual economic situation proven to you based on business figures!)
- The financing volume is relatively transparent because the business history is available, leading to easier financing.
- You can usually rely on well-educated and experienced professionals.
- You will also find an established customer and business partner base built over the years.
- The company already has well-functioning processes that you can leverage.
- You generate revenue and profit from the beginning.
- And - if you want and are lucky - the former owner may still assist you if needed.
So, you're not starting from scratch – yet you can still implement your own ideas and visions for the future!
How do you design a successful business succession?
For a business succession to be sustainable and successful, there are several things to consider. It is important that you, together with the seller, shape the succession process in a way that is understandable for the employees, customers, and potential business partners.
Of course, there is no one-size-fits-all solution for business succession. The optimal solution for your project depends on various criteria.
Below are some tips on where you can learn more about the topic:
- The Federal Ministry for Economic Affairs and Energy published the brochure "Business Succession: Optimal Planning" in 2019, which extensively covers the topic in around 100 pages. It is aimed at both sellers and potential successors. This practical guide provides initial orientation and helps to successfully master the upcoming tasks.
- You can find hints and tips for successful business succession on the website of the business exchange nexxt Change.
- Specifically for Mecklenburg-Vorpommern, there is the Coordination Center for Succession Central MV. Here you will receive comprehensive information about the process of taking over a business and will be guided through the first steps. You may find suitable companies here that are looking for a successor.
- You can find helpful information and tips on the pages of the Bürgschaftsbank M-V, especially in the checklist for business takeovers.
- The IHK (Chamber of Commerce and Industry) Business Value Calculator (free and accessible to all) helps to realistically assess the value of the company. Here you could possibly find a consensus with the company in case your financial expectations are far apart.
You can read about the successful completion of a business succession in our founder story: "Business Succession Secures Business Model and Jobs."