The challenges facing Swiss family-owned SMEs when it comes to transferring ownership

What are the challenges faced by Swiss family-owned SMEs when it comes to their transfer?

Faced with structural challenges such as the search for innovation, digitalization, the response to environmental and social issues, governance and the recruitment of talent, the question of succession is often overlooked.

The stakes are high: passing on one’s company is a decisive and critical step in the life of an entrepreneur. A sensitive subject with many personal implications. These often lead to the intervention of more emotional and psychological factors in the management of the transfer.

In family-owned SMEs, the leader, even if he is not the pioneer or the first of the dynasty, has an aura in the company that goes beyond his role. He embodies, beyond the values, the history, the heritage, the vision and finally the meaning of the company. As the bearer of its raison d’être and its founding myth, he is a pillar of the intangible capital of his company.

In this very particular context, the succession process must take into account the intangible value of the company as well as the specific patrimonial and family aspects.

This multi-factorial analysis, carried out jointly by our team of experts in SME transfer and our partners in asset management, allows us to establish a Business Continuity Plan integrating the parameters of transfer and succession.

The specificity of family-owned SMEs, due to the importance of the values associated with their history and their mode of governance and management, often leads them to benefit from a strong intangible capital. Rarely estimated and little valued, it is nevertheless a significant lever of financial value and performance.

Stakeholder impact and cross-generational vision

Developing a transgenerational vision is essential to perpetuate the patrimonial and intangible value of the company. Indeed, the founder is often the sole reason for the company’s existence.

However, only 46% of family SMEs have written down their values and objectives. Most of the time, they have not yet realized the impact of their values and the associated added value.

They would benefit from understanding the role that values play in their success, formalizing them and assessing the resulting corporate culture associated with them.

Companies that capitalize on their asset value often record better results and are more sustainable. This is a real asset in terms of recruiting talent, performance, valuation during a transfer outside the family circle and a guarantee of the company’s longevity. Some of them can claim the title of secular company.

The specificities of family SMEs are also illustrated by their vision of entrepreneurship and a more inclusive economy. The human size of SMEs and their family governance favor a more global vision that often includes the company’s stakeholders. The purpose of the company goes beyond making money, it is a player in society as a whole and intends to offer its services in a sustainable way. Thus, the impact of the transmission on business partners is a factor taken very seriously. Social involvement can thus also become a pressure factor at the time of the transfer of the company.

The next generation

Very often the heirs work in the company. However, the number of transfers within the family framework has been decreasing over the years and now represents on average less than one transfer out of two. There are many reasons for this decline, which I will not go into here.

More than half of the SMEs are sold to buyers outside the family: “the rate of transmission to heirs varies between 30% and 50%”. *

Although 74% of entrepreneurs want to keep the business as a family asset or at least keep it in the family (66%), only 13% of entrepreneurs have a formalized and communicated succession plan. *

Some people have certainly given some thought to succession issues. However, these reflections very often struggle to take a more pragmatic and concrete path.

In fact, according to a PwC Switzerland study published in 2019 *:

– 47% do not have a formalized and communicated succession plan

– 38% have a plan but have not written it down

– 22% have an estate plan without having discussed it with family members.

How can this lack of preparation be explained?

As revealed in the introduction, succession is often elided for two main reasons:

• The first is time and resources: this subject takes a back seat to the management of many other subjects of importance to the company’s management. In contexts of economic uncertainties, the subject is often postponed. This is a subject that we have addressed in our white paper: “Covid19: Should you put your transmission project on the back burner?
• The second is that the subject is delicate to deal with because of its personal, family and patrimonial implications. The personal implications are all the more important when it comes to the 2nd or 3rd generation. Not being able to pass on the management to the next generation is often perceived as a failure and a suffering for the entrepreneurs. What will happen to this reputation acquired over the years and by sheer force of will? Finally, succession regulations are often accompanied by fears linked to the lack of knowledge of these rules or to the potential family conflicts that this could generate.

What can be done about it?

At first,

It is a matter of putting in its place the importance and criticality of the subject to define its strategic posture.

Preparing a Business Continuity Plan that includes a succession strategy is the first of the CSR steps that an entrepreneur should take.

It is a matter of embodying one’s responsibility towards the material and immaterial capital of one’s company.

Thinking about the transmission of this capital is part of a process of sustainability and resilience of people and the economy.

Preparing for this reflection means being part of a long-term vision.  It means creating the groundwork for the transmission of the company’s raison d’être and values through the implementation of a transgenerational vision. To inscribe the company in the long term by capitalizing on its history: its founding myth, its vision and its missions.

In a second step,

It is a matter of taking the time to reflect and formalize. As is often the case, it is by exchanging and sharing one’s point of view and ideas with third parties that the idea is established with greater precision in an atmosphere of consultation that is always favourable later on.

In particular, when you have the opportunity to exchange with experts in the field of business transfer and private and commercial asset management. This is the opportunity to remove areas of uncertainty and doubt and thus gain visibility and confidence.

Actoria offers through its 360° Diagnosis the possibility of implementing an approach aiming at migrating the intangible capital embodied by the family (people) towards the company.

Our analysis tools allow us to :

– Highlight the intangible value of the company. This formalization allows to “make the intangible tangible”. Not only does it increase the financial value of the company, but it also consolidates the transfer, whether it is carried out within the family circle (FBO) or outside it (MBO, MBI).

– Take into consideration ESG criteria (CSR) with specific tools adapted to family governance structures. This is a real strong point, structuring the evolution and highlighting the performance of the company in a context of high expectations from stakeholders and investors.

It is necessary to understand that before being a transmission project, it is above all a project that allows to guarantee the perennial evolution of the company.

This approach allows, among other things, to desensitize future debates from too personal approaches.

This long-term support in the handover is the guarantee of a form of serenity not only for the entrepreneur and his family but also for his employees.

The vision of Actoria

We have the same entrepreneurial sensibility and the same consideration for human capital and patrimonial value.

With a demanding project code of conduct based on absolute confidentiality, irreproachable integrity and the excellence of our know-how, we are committed to deploying all our creativity to offer you customized and innovative solutions.

Over the years, we have developed a methodology to accompany you in this decisive stage of your company’s life.

ACTORIA is a partner of companies with the objective of sustainable development, allowing the company, the entrepreneur and the stakeholders (employees, customers, suppliers, partners) to contribute to this development.

Our role is to be at the heart of the economic fabric and to encourage its resilience, to perpetuate the transmission of your know-how and to enhance it.

We also orchestrate for you the best pension and asset management experts to meet the specific needs of your family business.

It is urgent to wait or to act, depending on the situation…

by Isabelle Bonnal, Director of Communications Actoria 

Isabelle Bonnal is a graduate in corporate communication (University of Paris V), in commercial negotiation techniques (Novancia), with a specialization in the creative industries (IFM) and certified Barrett Values Centre, she assists companies in Europe (finance, real estate, communication,…) in defining their cultural identity, their governance and their communication in an inclusive approach taking into account all stakeholders (employees, partners, customers, suppliers) and the ESG approach.

Thanks to the artist Gabs, for the use of his illustration of the cover of the book “Petit Dictionnaire d’expression biblique” published by Cerf.

Source*

https://www.pwc.ch/fr/publications/2019/etude-entreprises-familiales-suisses-FamBiz-2019_A4-web.pdf