Business succession in small and medium-sized enterprises: Your comprehensive guide to proper planning

Chapter 1: What is meant by business succession in small and medium-sized enterprises?

Business succession describes the transfer of management responsibility and ownership of a company to a new person or company. While large corporations usually have structured processes in place, succession in small and medium-sized enterprises is particularly individual—and often challenging.

Medium-sized companies are characterized by strong owner loyalty, flat hierarchies, and personal customer relationships. This makes them successful, but can also be problematic when it comes to succession: if key processes are not documented or key decisions are made exclusively by the owner, potential successors lack structure.

In family businesses in particular, there is another factor to consider: the emotional component. Decisions are not purely economic in nature, but are closely linked to family expectations and traditions.

Therefore, plan ahead and create clarity—for yourself, for the company, and for potential buyers or successors.

Chapter 2: Succession planning step by step

Business succession is not a one-off event, but a lengthy, strategically planned process. In small and medium-sized enterprises in particular, the handover of a business is often closely linked to personal emotions, family structures, and economic considerations.

The complexity and time required for preparation is often underestimated, meaning that it is frequently started too late. However, the start of the process determines how smoothly, economically, and humanely the handover ultimately proceeds.

Technical expertise is equally important—and this is not usually available without professional support. Our advice is therefore: never tackle succession planning without expert support.

Phase 1: Planning and strategy development

The first step is to take an honest look at your own goals, expectations, and wishes for the future:

• Would you like to withdraw completely?
• Would you like a gradual handover?
• Is a family-based solution an option, or are you deliberately ruling it out?

This phase involves more than just choosing a successor—it’s about your life’s work and how you want to see it continue. External input can help you reconcile emotional, business, and legal perspectives. Without clearly defined goals, you will lack a basis for decision-making later on—from approaching buyers to drafting contracts.

A structured schedule in which you define milestones and tasks will help you maintain an overview. Allow for a lead time of one to two years, depending on the size of your company and the model you want to implement.

Phase 2: Market analysis and selection of the successor solution

Once your personal goals and framework conditions are clear, the analysis of possible succession solutions begins. This is not just a matter of deciding between internal and external options, but also involves strategic considerations:

• Are there any suitable candidates in the management team?
• Is there interest within the family?
• Could a management buyout (MBO) or management buy-in (MBI) be an option?
• Is a sale to investors or competitors a possibility?

At this point, it is crucial to have an experienced M&A advisor at your side. As an entrepreneur, you usually do not have a complete overview of potential buyer groups, market mechanisms, or current transaction trends. This is where our work comes in: We analyze the market for you, evaluate the attractiveness of your company from an external perspective, and identify suitable succession options—tailored to your goals and priorities.

A neutral view of market conditions is crucial. How does your company compare to others in the industry? Which buyer groups could have strategic interest? And how attractive is your company in its current form? A realistic assessment helps to avoid disappointment—and strengthens your negotiating position.

This phase also marks the start of preparations for the sales process: compiling relevant company data, optimizing internal processes, and conducting an initial assessment by experts pave the way for subsequent matching with suitable interested parties.

Due diligence

A key component of market analysis is the professional execution of due diligence. This involves a detailed examination of the financial, legal, and operational aspects of your company.

Due diligence is requested by the potential buyer and carried out by their advisors. It usually takes place after initial agreement on the key points of the sale and serves as a basis for the buyer’s decision and as a safeguard. Typical components of due diligence are:

• Financial audit: Analysis of balance sheet, cash flows, and sales.
• Operational audit: Review of customer contracts, processes, and organizational procedures.
• Legal review: Ensuring compliance, clarifying liabilities, and protecting intellectual property.

Mit einer fundierten Due Diligence wird Ihre Verhandlungsposition gestärkt. Das Risiko für spätere Missverständnisse und Konflikte lässt sich minimieren.

Phase 3: Transfer of the company and integration of the successor

Once a suitable successor has been found, the most sensitive phase of the entire process begins: the handover. This is when it becomes clear whether the change will work in everyday life—whether employees will gain confidence, customers will remain loyal, and the corporate culture will be preserved.

A successful transfer is never just a legal act, but above all a human process.

The most important steps in this phase include:

• early communication with employees and customers
• the introduction of the successor to operational and strategic processes
• knowledge transfer – ideally over several months
• possible support from the transferor, for example as a consultant or advisor

possible support from the transferor, for example as a consultant or advisor

Why these steps often fail without professional support

Why these steps often fail without professional support

Typical consequences of a lack of support are:

• Delays due to unclear roles and responsibilities
• lack of market knowledge when approaching buyers
• Conflicts within the family or workforce
• legal uncertainties in contract drafting
• lack of tax and legal optimization in the transfer

An experienced succession partner such as Conpair will accompany you from the very beginning—with structured planning, clear project management, and a reliable network of potential buyers, specialist lawyers, tax experts, and M&A specialists. This ensures that your succession is not a risk, but a sustainable decision for the future.

Chapter 3: Types of business succession

There are different models of business succession—each with its own advantages and disadvantages. Choosing the right option has a significant impact on the economic and emotional future of everyone involved.

Succession within the family

Many entrepreneurs want to hand over their company to the next generation. The advantage: the corporate culture is preserved and trust is already established. At the same time, however, this solution also carries risks, such as family conflicts, excessive demands on the successor, or possibly a lack of acceptance within the team.

Other options within the family include inheritance or gifting, whereby the company is usually transferred in a tax-optimized manner, or the foundation solution to secure the life’s work in the long term. However, if no one in the family wants to or is able to take over the company, the option remains to appoint an outside managing director or ultimately lease the business in order to continue generating income.

Tip: Clarify expectations, qualifications, and role assignments early on. External moderation by consultants can help to avoid tensions.

Practical example

A medium-sized manufacturing company decides to hand over the business to the family’s daughter. It turns out that the successor has technical knowledge but little commercial experience. However, with external support from a coach, stable leadership can be established.

Important: Use external experts to assess qualifications—this avoids family conflicts.

Internal company succession (MBO and OBO)

In a management buyout (MBO), existing managers or senior employees take over the company. The big advantage lies in familiarity: the successors know the structures, the staff, and the work processes, which enables a smooth handover. In addition, the know-how remains within the company.

The challenge: Financing and changing roles from employee to entrepreneur require thorough preparation and, in some cases, external support from investors.

Alternatively, in an owner buyout (OBO), a co-partner can take over the company completely. This solution offers stability, as the co-partner usually has extensive knowledge and experience in business management.

External succession (e.g., sale to third parties)

An external sale offers great opportunities—especially when no internal solution is available. There are several possibilities:

• Management Buy In (MBI): Acquisition by external managers who bring new perspectives and ideas to the table.
• Strategic buyers: Sale to companies in the same industry that want to leverage synergies and expand market share.
• Financial investors: Private equity firms or institutional investors that contribute financial resources and growth potential.

These options often enable higher sales prices and ensure that the company is placed on a stable footing.

But you should ask yourself: Are the buyer’s values, vision, and culture compatible with your company? A structured selection process and targeted approach to suitable buyers are crucial here.

Chapter 4: Legal and financial challenges

A well-planned succession is based on solid legal and financial foundations. Otherwise, there is a risk of disputes, liability risks, or tax disadvantages—for example, when transferring company shares.

company valuation

Company valuation is the foundation of every sale or transfer. Depending on the industry, size of the business, and business model, different valuation methods may be appropriate for companies.

Typical methods:

• Income approach (based on future profits)
• Net asset value method (value of company assets)
• Multiplier method (comparison with similar sales)

Choosing the right valuation method requires expert knowledge in order to create a realistic basis for negotiations.

Case study: A mechanical engineering company relies on the multiplier method, comparable to similar transactions in the region. This can convince a buyer with a strategic corporate background who is willing to pay a higher price.

Don’t rely on gut feelings or wishful thinking here. Professional evaluations by experts create clarity—and credibility with prospective buyers.

contract drafting

Purchase agreements, etc., must be tailored to your individual situation. Standard agreements are not sufficient here. Important aspects to consider are:

• Purchase price and payment terms
• warranty provisions
• non-competition clauses
• Transition periods and handover models

Conpair works with an experienced network of specialist lawyers and notaries to protect your interests.

Tax issues

Taxes play an important role in succession planning—especially when it comes to inheritances, gifts, or the sale of company shares. Here, too, we can draw on a network of specialized partners.

Chapter 5: Involving employees and customers

The transfer of a company affects not only the owner and buyer, but also the people within the company. A lack of communication or uncertainty among employees and customers can jeopardize stability. This is where the right strategy is crucial.

Proceed with caution

The decision about who is informed about the succession and when must always be weighed up on a case-by-case basis. It may be advisable to involve individual trusted persons before the contract is concluded.

However, you should always choose your approach carefully. You should prevent information from being leaked unintentionally in advance—and also prevent uncertainty among employees.

Secure customer relationships

Long-standing customer relationships are a valuable asset. Communicate the succession openly, emphasize continuity, and introduce the new manager personally. Transparency is also essential here—as soon as the contractual matters have been settled.

Chapter 6: The most common mistakes – and how to avoid them

Many entrepreneurs make similar mistakes when planning for succession—often due to ignorance or lack of time. Here are the most common stumbling blocks and specific ways to avoid them:

Mistake No. 1: You start planning too late.

Succession planning cannot be organized overnight. Those who only start thinking about it once they reach retirement age may have to settle for suboptimal solutions.

Solution: Ideally, start one to two years before your planned retirement. This will give you time to make your selection, prepare, and hand over the reins.

Mistake No. 2: You have unrealistic price expectations.

Many entrepreneurs overestimate the value of their company. Emotional attachment or past peak periods are often given greater weight than current facts.

Solution: Have your company professionally evaluated by a neutral party—and understand the mechanisms behind it. This gives you negotiating power and avoids disappointment.

Mistake No. 3: You do not make a clear decision on the form of succession.

Hesitation, waiting and constantly reviewing new options – without making a clear decision. This is how the succession process drags on and ties up valuable resources.

Solution: Decide early on which direction to take (within the family, MBO, sale, etc.) and develop a strategy based on this. Seek professional support here.

Mistake No. 4: You leave employees and customers out of the loop.

Rumors, uncertainty, loss of trust—all of these can arise when key groups are not involved. However, caution is advised here: carefully consider who you inform and when.

Solution: Coordinate communication closely with your M&A advisor and the potential buyer. Communicate in a timely manner, but not too early, and be empathetic. Use internal meetings, customer events, or personal conversations.

Mistake No. 5: You forego professional support.

“I can do it on my own.” This idea is deceptive—and has already caused many succession processes to fail. Business succession requires legal, tax, business, and human expertise.

Solution: Seek professional M&A advice. Rely on an experienced team that will guide you through the process strategically, legally, and personally. We at Conpair are happy to assist you.

Conclusion: Business succession – a task requiring foresight

Business succession is one of the most crucial milestones in the history of a company. It is a complex process involving emotions, economic interests, and human responsibility. The sooner you start thinking about it, the more flexibility you will have. Conpair has been supporting medium-sized companies through successful succession processes for over 25 years – from the initial strategy meeting to the final contract signing. Whether it’s a management buyout, the sale of company shares, or the closure of a business due to retirement, we are your partner for a sustainable transition. Arrange your non-binding initial consultation now and secure the future of your company with professional succession planning.