Article written by Marketing Team
Business succession: a personal and macroeconomic issue
Company succession is a complex and emotional step for any entrepreneur, but it is also a major challenge for the Swiss economy. This strategic task, which must be carefully anticipated, concerns not only the financial aspects, but also the ideals (vision, mission), because a company generally represents much more than a simple source of income for the person who created it.
An unstoppable demographic trend
More than three quarters of SME owners have already considered the issue of succession, even if only in broad terms. One-fifth of SMEs are actually considering transferring their business within the next five years. These companies represent more than 400,000 jobs* or about 10% of the national workforce. The macroeconomic stakes of successful succession are therefore indisputable.
The importance of business succession is even more pronounced as the baby boom generation, which represents more than 50% of SME managers*, approaches retirement age. This mass retirement is expected to lead to a significant increase in business succession over the next 15 years*.
Towards a diversity of succession methods
In a context where more and more potential successors decide to break away from the family business, extra-family succession projects are multiplying. A relative majority (41%) of entrepreneurs* still want to transfer the SME within the family, but around 20% of them are considering extra-familial solutions.
Among the non-family succession plans, selling to former employees (management buy-out) is the most frequently mentioned, followed by selling to another company or to a private equity firm and selling to individuals outside the company (management buy-in).
Necessary preparation of the succession
When it comes to succession, preparation is essential to ensure the continuity of the company. It is not only a question of settling legal and tax issues, but also of planning the transfer of skills and responsibilities. This often involves training the successor for a period of time to allow him or her to understand the business and develop the necessary skills.
Unfortunately, many entrepreneurs fail to plan their succession in a timely manner, particularly because of the many tasks and challenges they face on a daily basis. In addition, the issue of succession is often emotionally charged and can be difficult to address.
Challenges specific to family businesses
In the case of family businesses, succession can be particularly challenging. It is common for emotional ties between family members, unspoken expectations and latent conflicts to make the transition more difficult. Therefore, it is essential to communicate openly and resolve potential issues in advance.
In addition, family businesses often have to balance the economic interests of the business with the personal interests of family members. For example, it can be difficult to decide who will be the successor if several children are interested in the management position.
Selling, rather than bequeathing
In a sale scenario, the valuation of the company is a complex step in which it is essential to be accompanied.
“In the context of a business transfer from a family member, valuation is one of the key steps,” says our corporate finance specialist Mazyar Araeipour, CFA. “Both the seller and the buyer will need to value the subject matter of the transaction in order to identify a range of value that will serve as a reference during negotiations. For the seller, this will also determine the psychological threshold below which they will not want to go. For the buyer, this pattern is reversed and will establish the maximum price they are willing to pay,” he explains.
The profile (and therefore the selection) of the buyer is also important. A strategic buyer, i.e. in the target company’s field of activity and whose motive is to proceed to a vertical integration by acquiring the target company, will generally agree to pay a higher price. A financial buyer, such as a private equity fund, will generally pay less, since it is already thinking about its margin on the future resale. As for an acquisition by employees, the price will be even lower because they often lack the financial means compared to the other buyer profiles mentioned above.
Valuation is a complex, multi-step process that relies on advanced, peer-recognized financial techniques. In this respect, valuation alone can be considered as a profession. Also, when transferring a business, the buyer as well as the seller are accompanied by experts in business valuation. The same experts will often be present in other phases of the business transfer, notably during the due diligence phase on the financial part. Due Diligence, which could be a long topic in itself, is a kind of acquisition audit required and conducted by the buyer.
Towards more sustained support
In the face of these challenges, it is essential to provide support and advice to businesses on succession issues. This can take the form of legal and tax advice, leadership training for successors, or mediation in case of conflicts.
In conclusion, business succession is a crucial issue for the Swiss economy. If well managed, it can ensure the continuity of the company and preserve jobs. However, it requires careful planning and careful management of emotional and interpersonal challenges.
*Sources : Crédit Suisse survey Succession d’entreprise dans la pratique and Crédit Suisse & University of St. Gallen survey Succession d’entreprise (défi du changement de génération)