Together with the Center for Family Business at the University of St. Gallen (CFB-HSG), the economists of Credit Suisse have today published the study "Company Succession in Practice." Among other things, the underlying survey of more than 150 entrepreneurs reveals that company succession is a complex process that can drag on and require support from external parties. The study analyzes the planning and handover process in detail, scrutinizing in particular the chronological sequence of steps in the succession process. What emerges clearly is that those who tackle the issue of succession at an early stage are in a better position and enjoy greater freedom of maneuver.

For any entrepreneur, succession planning is one of the most crucial strategic tasks in their entrepreneurial life. Indeed, many business owners engage with the issue of succession twice in a relatively short timespan: first as the acquiring party, and then again as the transferring party. The study reveals that two-thirds of entrepreneurs who have taken on responsibility for running a business in the last ten years have already thought about their own succession, with 15% already having put the corresponding mechanism in place. But many entrepreneurs find letting go of their own company a difficult thing to do, particularly as they see it as their life's work. The survey results underscore this point: In 80% of company handovers to have taken place over the last ten years, the decision by the previous owner to step down has been driven by age or health concerns, i.e. the handover of the company mainly drags on until the last possible moment.

A difficult step – handover to a member of the inner circle
Based on the survey results, the handover of company leadership and ownership can essentially be broken down into two types of succession sequences: On the one hand a "baton change," where both management and ownership of the company are transferred at the same time, and on the other a phased transfer of both roles. Whereas the former approach takes an average of around six years between the succeeding party joining the company to the completion of the succession process, the latter typically takes 14 years on average, or more than twice as long. In terms of the degree of satisfaction expressed by incoming bosses after the business takeover process is complete, the survey reveals no significant difference between the "baton change" and the phased handover approach.

As the Swiss corporate landscape is densely populated by family-owned companies, it is not surprising that a family solution is arrived at in more than half of company handovers, with the second-most popular variant being the handover to employees. From the perspective of the outgoing entrepreneur, a handover to someone in their inner circle has the obvious attraction of this person being familiar with the future vision of their predecessor. It is therefore hardly surprising that the choice of successor often falls on intrinsically motivated individuals: According to the survey, the key characteristics of a successor are typically a belief in the success of the business idea and a close association with the company and its workforce. Of lesser importance for the party deciding to take on the reins of the company is the aspect of social recognition. This mix of motivations is likely to be popular with the outgoing boss too, who will be keen to ensure that the company ends up in the right hands.

Many entrepreneurs reaching the end of their tenure find it heart-wrenching to simply walk away from their business, as evidenced by the fact that many of them continue to play a role in the company after the handover: According to the survey, almost half of the outgoing generation spend at least an hour a week in their former company even two years after the succession. On the plus side, the presence of the transferring party can be of benefit to their successor: More than half of surveyed successors stated that they could still count on the advice of the previous owner when confronted with difficult decisions. However, the latter's presence can also be an obstacle to genuine entrepreneurial independence. This underlines the importance of regulating the various responsibilities with a clear division of tasks: Around 75% of surveyed entrepreneurs expressed the view that this aspect was very important if a handover process was to be successful. "As the incoming party, you have to weigh whether the benefit of being able to draw on the experience of your predecessor outweighs the negatives of unwanted influence and the associated potential for conflict," explains Marie Klein, doctoral student and research associate at CFB-HSG. And indeed, tensions during the handover process are not uncommon: 27% of entrepreneurs stated that they had experienced moments of conflict during the succession process.

Between professional advice and emotions
In the context of company succession, various topics are also addressed for which the necessary specialist knowledge in one’s own company is often limited, or for which there is simply not enough time to process – which is why external assistance is required. According to the survey, around three-quarters of respondents identified a certain need or even a very great need for assistance in the area of tax questions. External specialists are also highly sought after in connection with the strategic preparations for a company handover, as well as with financial questions: In both cases, around 40% of entrepreneurs see a need or even a very great need for support in this area. "Financial planning at an early stage increases the freedom of maneuver enjoyed by the outgoing entrepreneur, for example when it comes to optimizing pension potential in a way that does not place a short-term financial burden on the company," observes Prof. Thomas Zellweger, Director of the CFB-HSG. As such, external assistance can play an important role in structuring succession topics and reducing their complexity.

Whereas the survey identified a great need for support at a specialist level, individual and personal advice appears to be less in demand. The survey results show that entrepreneurs typically look to their immediate circle of acquaintances rather than to external parties for solutions to questions of this kind. "The emotional factor should not be underestimated," points out Alexandra Bertschi, Head of SME Succession Planning at Credit Suisse. "For the outgoing entrepreneur in particular, letting go of a company can be an emotional challenge, and one that can complicate the handover process."

Be prepared for the unforeseen
What's more, the preferred succession option often turns out to be unfeasible. Entrepreneurs should therefore review various different succession options so that they are prepared for such an eventuality. One alternative worth considering is a company exchange, for example. "Although the surveyed entrepreneurs generally expressed skepticism toward the idea of company exchanges, going down the platform route also has its benefits," says Pascal Zumbühl, economist at Credit Suisse. "Registering on an exchange has the effect of increasing the visibility of the company, as it brings a company into contact with a much wider potential acquisition base."

In addition, unforeseen events can also impact the timing or the structure of a company handover. Changes in the economic environment against the backdrop of the coronavirus pandemic motivated many entrepreneurs to bring forward their company handover: 6% of respondents reported this to be the case (cf. Fig.). But other factors too can unexpectedly accelerate the succession process, such as a stroke of ill fortune or pressure from competitors, the entrepreneur's own family, or their business partners. "Those who set the wheels in motion for a smooth handover at an early stage and grapple with the emotional aspects of this process years before the actual succession have a major advantage," says Alexandra Bertschi.

You can find the 2022 succession study "Company Succession in Practice" along with further information on this topic at www.credit-suisse.com/successionstudy.