One out of three SMEs disappears in Switzerland due to a lack of successors. Business succession is a fundamental challenge to ensure the continuity and success of an enterprise. The necessary steps for its execution are often complex and require several years of preparation.
The business succession process typically lasts for an average of 6.6 years, as reported by the Dun&Bradstreet firm. Additionally, almost 15% of businesses slated for a change in ownership within the next five years have yet to initiate the necessary steps. This lack of foresight can result in an overwhelming workload during the transition period, a depreciation of the final sale price, or even the business's demise. Matthias Büeler, partner in the area of transaction and succession consulting at the audit, trust, and advisory firm BDO, advises, "Ideally, the question of succession should be considered as early as the age of 55."
Selecting the successor
Today, there are three main succession scenarios: intra-family transfer (also known as FBO for "Family Buy-Out"), internal transfer within the company, where one or more trusted employees are entrusted with the keys to the company (also known as MBO, for "Management Buy-Out"), or the external sales procedure.
"For most business owners, the best choice often becomes apparent in the early stages of the process." The owner's personal situation, as well as the size and sector of the business, are decisive factors. "For previous generations, intra-family succession was the norm. However, this type of transfer is becoming less common, even in SMEs," warns Matthias Büeler.
Moreover, some entrepreneurs rule out this option from the start. Adrian Amstutz, owner of Amstutz Produkte in Eschenbach (LU), decided to sell his chemical products company in 2022. For him, the question of the type of successor did not arise: he had no children, and no senior executive was willing to take over the business.
Even if inter-company sales can sometimes be concluded relatively quickly due to the substantial financial resources often available to such buyers, the risk of withdrawal should not be underestimated. "It's important not to rely on a single potential buyer, even if communication is smooth and a good understanding is established. Always consider an exit strategy," says Adrian Amstutz.
Setting the price
To estimate their value for sale, companies must seek the assistance of a specialized firm in the field. "Family members or employees taking over often benefit from a discount," explains Matthias Büeler. Generally, FBOs and MBOs are concluded with a discount that can go up to 30%.
The process involves undertaking a significant number of often complex and time-consuming steps: financial examinations, inventory of assets and liabilities, and verification of regulatory compliance in processes. However, many companies do not have the appropriate documentation when the owner begins to consider passing the torch. For Adrian Amstutz, succession resulted in a considerable increase in his workload during the transition period. "Expect to work more than 60 hours a week for several months. It's also a period where you have to be available to potential buyers at all times," he emphasizes.
To abandon ship or stay on board?
For a company in a FBO or MBO, as well as in an external sale, the former owner may still be involved in the business for a certain period, either because of emotional attachment or because the buyer demands it. In the latter case, the goal is to leverage the specific skills of the former leader and facilitate the transition, especially with employees and clients.
Adrian Amstutz chose not to leave Amstutz Produkte immediately: "The company bears my name, which probably influenced the buyer to keep me on board for now." For Matthias Büeler, all scenarios are conceivable. However, the expert warns against the risk of becoming a ‘phantom owner.’ "This situation can lead to some confusion within the company and among partners. If the former and new owners are close, emotional ties may hinder a rational decision regarding the degree of involvement of the predecessor."
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Challenging businesses to sell
Companies operating in high-value-added sectors such as the chemical and pharmaceutical industry or technology and information technology have good chances of being sold and continuing to thrive. However, other businesses may face challenges in finding a buyer or passing on to the next generation. This is particularly true for garages, masonry businesses, or publishing houses. According to the KMU Next Foundation, one out of three SMEs disappears in Switzerland due to a lack of successors.
Matthias Büeler believes that these businesses can still be sold to larger strategic players in the sector to find an honorable exit. "Nevertheless, concessions on the price may sometimes be necessary," summarizes the expert.
Last modification 07.02.2024
