Succession planning

What it means

Succession planning is preparing suitable people to take over key roles when the current holder leaves, falls ill or is promoted. The aim is that the departure of one person does not endanger the company's operations, customer relationships or the knowledge they hold.

In larger companies it concerns mainly management and specialist positions and is part of talent management. In small and family businesses it is above all about handing over management or the entire business to the next generation or another owner, one of the hardest moments in a company's life.

Succession has several dimensions: who will run the business, who will own it and how relationships, know-how and customer trust will be transferred. The answers need not be the same; a child may inherit the shares while an external manager runs the company.

How it works in practice

Preparation should begin years in advance. The owner gradually hands over decisions, the successor takes responsibility for parts of the business, and key customers, suppliers and the bank get to know them. It is important to document processes and knowledge through knowledge management so that they do not leave with the owner.

If there is no successor in the family, options include selling to managers through an MBO, selling to a strategic buyer or investor, or a sale of the business as a whole. Each route has different tax and legal consequences and preparation needs, so they should be compared in good time.

Legal preparation is part of it too: amending the memorandum, rules on inheritance of a business share, a will, powers of attorney in case of illness and a shareholders' agreement. Without these, the sudden death of an owner can paralyse the company for months.

What to watch out for

The most common mistake is putting it off. Owners are often reluctant to plan their own exit, and when illness or fatigue arrives there is no time left for a gradual handover. A company without a prepared successor loses value, as buyers and banks see dependence on one person as a risk.

In family businesses, succession is intertwined with family relationships. A fair solution for children who work in the business and those who do not requires open discussion and often an external adviser or mediator, so that disputes do not harm either the business or the family.