Succession planning in companies often receives little attention until it becomes an urgent necessity, posing risks to both the firm and the economy as a whole. In Switzerland, where the economic fabric is characterized by a considerable number of family businesses, this trend is particularly evident.
According to data from the Association of Family Businesses (Aif) Ticino, there are about 20,000 family businesses in Italian-speaking Switzerland, accounting for 64 percent of the total at the cantonal level. They thus represent a fundamental element of the Ticino economy, both in terms of turnover and employment.
On an international scale, it is estimated that only 30 percent of family businesses survive to the second generation, while only about 12 percent make it to the third generation without adequate succession planning.
A global survey conducted by PwC found that 43 percent of companies identified business continuity, i.e., a company's ability to perpetuate its business sustainably in the medium to long term, as the main reason for succession planning. Other reasons include avoiding conflicts between heirs (33 percent), minimizing inheritance taxes (30 percent) and maximizing the value of the business (30 percent).
It is therefore evident how a proper succession strategy plays a critical role in securing the future of businesses, with significant impacts on the company itself and the entire economy.
Business succession planning: the benefits
A company's continuity and long-term success cannot be achieved without careful and focused business succession planning. From preserving corporate assets to optimizing business strategy, a judicious succession plan can positively influence business continuity, corporate culture, and relationship management, shaping the company's future in a stable and prosperous way. Here are the most relevant impacts of succession planning:
- Business continuity
Business succession helps ensure that the company can continue to operate without significant disruption in the event of retirement, death or any other eventuality involving the owner or key executives. - Preservation of corporate assets
Passing on the company's vision, mission and core values to successors ensures the preservation of the company's heritage by going on to maintain the culture, customer relationships, operational processes and experience accumulated over the years. - In-house talent development
Defining succession provides an opportunity to identify and develop future leaders within the organization. This process promotes internal talent, creating a smoother and less traumatic transition. - Business strategy optimization
During the succession planning process, business strategy can be reviewed and updated to adapt to changing market needs and ensure the long-term relevance and competitiveness of the company. - External relations management
Timely organization can also involve relationships outside the company, such as suppliers, business partners and investors. This ensures a smooth transition and stability in corporate relations. - Minimization of disputes and friction
Planning clearly and transparently minimizes the possibility of conflict between family members or shareholder interests, thereby improving the business climate and internal relations. - Tax and financial planning
Proper succession planning can help minimize the tax implications associated with the generational transition of the business, ensuring that the financial impact is managed effectively.
What are the viable options for business succession?
At NFS Group, our method for supporting clients in defining the best option for business succession begins with a thorough assessment of their needs. We then proceed with a detailed analysis of the company, considering its structure, mode of operation, team composition and division of responsibilities. Based on this information, we carefully evaluate possible solutions.
One of the most common routes is succession within the family, which requires planning for about 12 years. In the case of family members involved in the business, it is critical to determine how to divide responsibilities and to consider the involvement of those not actively participating in the business. In addition, it is important to establish a well-defined timeframe for the transfer of management and ownership, while ensuring the stability and security of the organization's future.
Another option is succession within the company, in which current managers become partners through a management buyout. During this transition, it is crucial to effectively manage communication with employees, customers, and suppliers, as well as to clearly define future working relationships between the old and new owners.
Finally, external transfer of the enterprise can be considered. This choice requires a careful assessment of the personality, reliability, and technical and managerial skills of the potential buyer. It is also crucial to act early and keep in mind that the merger and acquisition (M&A) process typically requires about 4 years of planning. A clear definition of the financial situation and the succession scheme, which could be gradual, are crucial points in this path.
Effective business succession planning ensures that the company can meet and overcome the challenges associated with the handover harmoniously and effectively. It is never too early to begin this strategic process.
At NFS Group, we are committed to working alongside our clients to thoroughly address the legal and financial issues associated with this delicate transition phase. From handling legal and testamentary procedures, through the drafting of succession contracts, advance directives and shareholder agreements, we provide comprehensive support through our dedicated advisory services for SMEs. We are available to develop a comprehensive succession planning strategy, with a focus on detailed analysis of the costs and benefits involved.
