A topic that frequently arises in our daily practice is the question of business succession. Although the number of trainees in the skilled trades, for example, has increased steadily in recent years, many entrepreneurs cannot find a successor. Business succession is a central process that ensures a company will continue to operate successfully after the previous owner steps down.
Entrepreneurs face numerous questions in this context: When is the right time? What options are available? How does the process unfold? In this article, we provide an overview of the most important aspects of business succession.
1. Why is early planning important?
Succession planning should ideally begin several years before the planned transition. Early planning enables an orderly transfer and, moreover, minimises risks for the company. It gives the entrepreneur the opportunity to identify a suitable successor and to train them in a targeted manner.
2. What forms of business succession exist?
Depending on the corporate structure and individual circumstances, there are various succession options:
• Family-internal succession: The company is handed over to a family member.
• Employee takeover (Management Buy-Out, MBO): An existing employee or a team from the workforce acquires the company.
• Sale to external third parties (Management Buy-In, MBI): External investors or entrepreneurs acquire the company.
• Merger or sale to another company: The company is integrated into an existing structure.
• Foundation solution: Establishment of a foundation to administer the company.
3. What steps need to be taken in a business succession?
The succession process unfolds in several steps:
a) Analysis of the initial situation
Before a succession solution can be implemented, a comprehensive review should be carried out:
• What is the financial situation of the company?
• Which legal and tax aspects need to be observed?
• Are there already potential successors?
b) Selection and preparation of the successor
Selecting a suitable successor is decisive for the company's success. Important criteria include:
• Professional qualifications and experience
• Entrepreneurial competence
• Financial resources for the takeover
• Acceptance within the workforce
Where appropriate, a transitional phase is necessary during which the successor is trained and prepared for their future duties.
c) Valuation of the company
A realistic company valuation is essential in order to determine a fair purchase price. Methods such as the capitalised earnings method (Ertragswertverfahren) or the net asset value method (Substanzwertverfahren) may be applied. Professional advice is indispensable here.
d) Clarifying financing and tax issues
Financing the succession is often a challenge. Possible sources of financing include equity capital, bank loans, public funding programmes and equity participations. Tax aspects such as inheritance tax and gift tax (Erbschaft- und Schenkungssteuer) should be taken into account at an early stage.
e) Drafting contracts and securing the legal framework
Once the key parameters have been clarified, the transfer must be fixed in contract form. Important contractual components include:
• Purchase agreement or gift agreement
• Corporate law provisions
• Liability issues
• Non-compete clauses
• Antitrust law issues
• Inheritance law arrangements
f) Communication and implementation of the handover
The succession should be communicated transparently and effectively so that uncertainties within the company can be avoided. This applies in particular to employees, clients and business partners.
4. What challenges can arise?
Common pitfalls in business succession include:
• Lack of preparation and late planning
• Unclear rules on inheritance
• Financing problems
• Resistance within the family or workforce
• Lack of acceptance of the successor
5. Conclusion: Successful business succession requires foresight
Business succession is a complex process that requires strategic planning and professional advice. An early and well-considered arrangement ensures that the company remains in existence in the long term and continues to operate successfully. Entrepreneurs should address the question of succession at an early stage and bring in external experts so that mistakes can be avoided and a smooth transition can be ensured. Attorney at law and certified specialist lawyer for commercial and corporate law Mr Maximilian Rohrbach will be pleased to advise you in this regard.
