Obstacles to succession: How do you organize the transfer of your company?

The succession of a company is a lengthy process with many obstacles. Here is an overview of the main pitfalls awaiting the transferor. 

Practical experience always highlights the essential points which must be taken into account when settling succession of a company.

  • Late settling of succession of a company. Entrepreneurs unfortunately tend to address succession too late, resulting in a hurried sale (compulsory sale) or unwanted liquidation of the company.
  • Absence of strategy. The entrepreneur and their family do not have a clear vision of what will become of their role within the company. The succession process is hindered and confusion reigns.
  • Omnipresence of the entrepreneur. The owner decides on their succession on their own, without consulting the other interested parties. Since any conflicts of interest have not formed the subject of discussions and appeasement measures, the succession takes a disastrous turn. Another source of tension arises when the entrepreneur has difficulty giving up their company and continues to interfere in the business, which causes serious harm to their successor.
  • Inflexibility of the entrepreneur. Wanting to get as much profit as possible out of the succession, the entrepreneur refuses realistic compromises regarding the price of the handover. The sale is delayed or becomes impossible.
  • Assets not necessary to operation. Companies often have very large assets, most of which might not be necessary to its operation and which decrease the company’s profitability. This “encumbers” the company and also complicates the situation from a tax point of view. This type of company is hard to sell.
  • Rigidity of the method of succession. The entrepreneur charges head first into a succession solution which proves unsuitable or unrealistic. As no replacement plan has been considered, getting back on track becomes very difficult.
  • Choice of the “right” successor. This is without doubt the most difficult task. It is therefore worthwhile taking the time to draw up a good skills profile, conducting extensive research, conducting several in-depth interviews, preferably in the presence of a competent third party, and proceeding with the necessary clarifications.
  • Absence of advice. The succession proceeds without the help of independent experts, or experts are not called upon enough.
  • Lack of information. The succession is not the subject of open, frank communication. Employees and customers, taken by surprise and presented with a fait accompli, lose confidence in the company.
  • Vulnerability during the succession process. During the succession, the company is often in a position of weakness, whether on account of increased financial expenses or the new owner’s initiation phase. This is even the case where the latter had already been part of management. Competitors take advantage of this to attack. To succeed, it is very important to carefully plan the transition phase, ensure the transfer of key people's know-how, set up reserves (financial and personnel) and, as far as possible, actively involve the former management team in the succession process, at least for the first three to six months.

Source: UBS Outlook

Last modification 03.05.2021

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