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Business Succession Overview as Step-by-Step Guide

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What, where, how? – When you start, you can decide everything. You do not necessarily have to start a new business: well-functioning companies outlast generations. Business succession is a serious alternative to start-ups. In our article you will find all the information about company succession as a practical step-by-step guide.

General Articles Last updated February 26, 2019 © Pixabay divide 5/5 (3)

What, where, how? – When you start, you can decide everything. From product to presentation, from marketing concept to logo you can build your company according to your own ideas. Simple, that’s not to be dismissed, that’s not it. But the effort can be worthwhile: because you have it in your own hands, what you start with your working life. You do not necessarily have to start a new business.

Good running companies outlast generations. Business succession is a serious alternative to start-ups. Especially since the founding generation of the Wirtschaftswunderzeit is currently retiring. About half of the owners hand over their businesses to their own children or other family members. But the other half seek successors among existing employees or external interested parties. If you want to take over an existing business, you should make sure that it suits you. You should not be afraid to keep the proven and at the same time be prepared to innovate the company as you see fit.

Here you will find all the information about company succession as a practical step-by-step guide.

Step 1 – Find companies for a takeover

Step 1 - Find companies for a takeover

First of all, it is about finding a suitable company, which also somewhat corresponds to their own ideas and their own financial resources. Companies looking for a successor can be found mainly on relevant stock exchanges.

In addition, it is worthwhile to keep one’s eyes open in one’s own environment and to get tips from acquaintances, friends or industry colleagues. Other helpers: business mediators (which usually require a commission), advertisements in relevant magazines or relevant journals and online industry magazines.

Step 2 – Test chemistry

 

Many entrepreneurs are reluctant to put their business in foreign hands and often rate their business far too high. The “chemistry” between donating entrepreneur and successor should be right, because a takeover requires extensive contract negotiations.

Step 3 – Your succession idea & the company: Does it fit together?

Step 3 - Your succession idea & the company: Does it fit together?

Business succession can be very different – in practice, you should therefore clarify some important questions for yourself in advance even if you have a company for the acquisition envisaged.

  • What should stay?
  • What do you want to change?
  • What are the strengths and weaknesses of a company?

A good help here are the SWOT analysis and possibly also an analysis from the customer’s point of view.

Step 4 – Clarify legal issues

Step 4 - Clarify legal issues

Even before you go into concrete planning and negotiation, it’s time to face the laws and regulations that apply to your business.

  • Is an establishment permit required? For some businesses – for example in the catering trade and in the food industry – special demands apply to a suitable location. He must meet certain structural and hygienic requirements. In case of doubt you have to adjust to conversions. Because at the end there is an acceptance of the business premises or your production company by the responsible authority.
  • Applying for a Business Permit The Chambers of Industry and Commerce check whether you meet the requirements for your takeover and grant the business license. In some cases you need a championship title. Membership of the local Chamber of Crafts is compulsory for craft businesses requiring a license.
  • Commercial Log Gewerbeamt her your occupation logs on.
  • Berufsgenossenschaft Whether with or without employees – membership in a professional association is often compulsory. It is the bearer of your statutory accident insurance, which pays for work and commuting accidents.
  • Industry associations and guilds Association membership already in the start-up phase helps you, because here you will also get legal advice and expert advice.

Step 5 – Make a continuation plan!

Step 5 - Make a continuation plan!

Who wants to continue an existing company as a successor, of course, must meet the same conditions, as someone who founds new. Entrepreneurial planning is not so different from a start-up: comprehensive planning in a continuation plan – the equivalent of the business plan – is definitely necessary.

What is special about creating a continuation plan?

The continuation plan is about describing the business idea in the course of its continuation . It builds on the existing business, the existing customer potential, and (mostly) suppliers and employees. The actual situation must therefore be described as precisely as possible. For a continuation plan, even more detailed facts and figures are expected , since it is possible to derive very clear information from an ongoing business. A deadline for the transfer of the business, the purchase price and the legal form in which the business will continue after the acquisition must also be disclosed. Points such as capital requirements planning, liquidity planning and risk planning are just as necessary here as in a business plan.

Remember to make the most accurate estimation of the financial planning , by when the transfer costs from current operations will have amortized . The market, competitive situation and target group for existing and future intended business areas should be described as precisely as the existing, internal organization and the intended changes.

Step 6 – Review and Evaluate Business & Business

Step 6 - Review and Evaluate Business & Business

As a potential successor you have to “knock off” the existing company. Sales and profits usually show quite well how sustainable and profitable an existing business is. But that alone is usually not enough.

Anyone who wants to reliably estimate the development potential of a business and the response to their own ideas must look a little deeper, deal with customer structures and offerings in the immediate environment and the competitive situation.

It makes sense to have a professional due diligence check performed or performed. In this case, a period and a data room are set up, within which the potential buyer or successor all necessary data are provided. Thus one can estimate the risk of an assumption with due diligence (therefore the term “due diligence” is derived).

In practice, it pays to use specialized consultants and service providers for due diligence. The process of economic valuation of a company is as complex as the design of meaningful contracts for the business succession and should therefore be accompanied by professionals.

Step 7 – Determine the purchase price and financial requirements

Step 7 - Determine the purchase price and financial requirements

After the detailed examination, you can calculate the enterprise value of the business you want to take over. Great care should be taken: the one who wants to sell his company usually wants to get the best possible price. The enterprise value is the basis for the takeover negotiations, which are ultimately also about the purchase price.

With the purchase price, however, the financial needs are not yet covered. In the case of a takeover, so-called handling costs (lawyers, auditors, notaries) are added, and in the transitional period costs for severance pay of terminated employees, capital expenditures and settlement costs (termination of old contracts, etc.) must be calculated.

Even when starting up as part of company succession, it is important to weigh the advantages and disadvantages of individual types of financing . Find out about start-up loans , funding opportunities and guarantees.

Step 8 – training

Step 8 - training

Restructuring of individual areas can be helpful in bringing a breath of fresh air into a company and optimizing profits. Especially long-term entrepreneurs have often become “blinded” here. It is important: What external effect do you want to achieve with your innovations?

For a donor, this is often the most painful part of the transfer: that “his” taken over company suddenly and in one fell swoop has a completely different “face” than the many years or maybe even decades before. Not to be underestimated: Even customers often find it difficult when a company is suddenly “completely different”. The focus should be on the trust of existing customers, which is why it is important to think carefully about how much of the company’s external impact should actually be changed.

In some cases it can be a good approach to run the company to be taken over together with the previous operator: one gets to know the company well, its strengths and weaknesses and the day-to-day business, can “prove” itself and its qualification and a better one Establish contact with the old owner and the employees. This often makes acquisition much easier.

Step 9 – The takeover | With checklist

Step 9 - The takeover | With checklist

The last step on the way to corporate succession is the design of the acquisition agreement, with which you acquire your “new old” company. The content of the contract is essentially determined by which legal form you choose. Before you sign it, you should have completed the following company succession checklist .

Checklist Company Succession

 

  • You know what you want and have a strategy for takeover negotiations?
  • You have visited the company, talked to the previous owner in person, gave you detailed information about the company, have had preliminary preliminary discussions (personal interviews, company visit, in-depth information in addition to the company profile, discussion of the company’s history)
  • The transfer criteria and your continuation concept stand?
  • All parties involved in the company are informed of the upcoming transfer of business (employees, customers, suppliers)?
  • The financing is secured?
  • You have all powers to continue the operation smoothly after the takeover?
  • You know the contacts of customers, suppliers and business partners?
  • You know all the special contracts and obligations (liabilities, taxes, warranties) you incur with the acquisition?
  • You checked the company’s numbers and did an evaluation of the company?
  • You have all – ex officio – required permits and permissions?

 

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