The advantages and disadvantages of corporate succession

A company succession forms one alternative to classic business start-ups and is also associated with opportunities, risks and precise preparation. This variant always seems attractive.

The advantages of taking over an existing company

Anyone looking to invest in taking over an existing business has it tends to be easierto find investors and financiers. Because the financing is for an already existing and proven business model. This also includes taking over the existing company structures. Staff, customers, business relationships, everything is there. A time-consuming acquisition is therefore usually not necessary.

Products and services are already positioned on the market, which, in contrast to founding a company, saves a lot of bureaucracy in the form of permits to be obtained. The company exists as an independent brand that does not have to be built up first. The integrated operating equipment, for example in the form of machines, furniture and IT infrastructure, is a factor that should not be underestimated. As a result, operations can be continued immediately, which means immediate profitability of the company. Where there are usually more expenses than income, there is a flow of money when the company is taken over.

Succession to a company opens up the possibility of the former owner taking on the position of mentor. That means valuable expert advice.

Potential disadvantages and hurdles in the company takeover

When taking over an existing operation, many of the advantages are also potential disadvantages. First of all, of course higher seed capital for the purchase of the company. This amount creates potential difficulties in financing.

The existing corporate structures harbor the danger of becoming too stuck to prove. Even established brands, products and services do not necessarily mean that they are sustainable. Existing factory equipment may become obsolete. Extensive restructuring is then imminent when the company is taken over. Time and money flow into modernization measures. This leads to another potential problem: there is still no relationship between the new CEO and his employees and customers relationship of trust. This always harbors the danger of distrust and even rejection. At the same time, executives have immediate responsibility for the existing workforce and they have to integrate themselves into a team that works well at best. Possibly necessary personnel changes or even job cuts can therefore be rejected.

Old owners tend to be valuable advisors, but can also become a disruptive factor due to dominance. This creates potential for clashes. At the same time, taking on the leadership position always means jumping in at the deep end in a way. Possibly there are also qualification deficiencies at various levels.

Company succession – So check who is existentially committed

Where the initial phase, which is typical for founding a company, is omitted when taking over a company, one takes its place intensive preparation phase. This is the only way to minimize the risks of the disadvantages described and to succeed in the successor. Anyone who wants to become self-employed by taking over a business must also draw up a business plan for this case. This initially includes a precise financing model. Here it depends on the type and size of a company as well as the available equity capital which funds are suitable.

Another step is the exact analysis the company. This includes a realistic company valuation, which is best done by an external management consultancy. Specialized management consultants can evaluate a company, if necessary support the search for a suitable company and in this case also potentially serve as a mediator (service tip: find consultants). Depending on the situation, such advice can be funded proportionately (service tip: funding check). The analysis and evaluation of a company advances important core issues into focus. What impact would a change in leadership have on the value of the company? What management style has prevailed so far and what has worked and what hasn’t? What is generally going well in the company and where is there potential for optimization? What are the risks of the takeover?

Analyzing your own is just as important as analyzing a company capabilities. Here it is important to critically question one’s own know-how and, if necessary, to expand it. Everyone has to grow into a leadership role, but at least targeted preparation can create the best possible starting conditions. So anyone who is seriously considering a company succession should take advantage of opportunities such as further training, events and advisory services (example: German Institute for Corporate Succession).

Another important role in the takeover is played by the time factor. A company handover does not happen overnight. This may seem trivial, but founders should carefully consider the timelines involved. At least a year usually elapses between the start of a handover and its actual completion. Long before that, companies begin to search for and select a suitable corporate successor. The positive aspect: founders can use this period of time effectively. Securing the financing, familiarizing yourself with the corporate structure, improving your own know-how – these are all important tasks.