How do you ensure the succession of your SME?

A successful entrepreneur is not immune to the unexpected, such as a serious illness or accident. Quick action is essential. Here are the best recommendations for selling your business at the right time.

Start succession planning as early as the age of 50

Put in place the succession strategy for your SME well before you think about selling the business. It is strongly recommended that you start thinking about this at the age of 50, so that you have the time you need to plan a smooth handover. Clarify the roles and responsibilities that your key employees will have in the future. They may or may not be members of your family. Then plan for the training of the successor you have identified and gradually involve him or her in the decision-making process.

In reality, succession planning takes place years before the actual sale of the company. If major changes need to be made to the company's legal or capital structure to facilitate the future sale, they should be initiated sufficiently early.

This is because of the delays inherent in tax and legal procedures. What's more, finding a suitable buyer (a family member or a third party) takes time. So start canvassing discreetly a few years before the sale is due to take place. This will help you to identify the best option for securing your business legacy.

Carry out a full audit of your planning

It is essential to carry out a thorough review of your estate planning when you are approaching 60. This audit will enable you toidentify the strengths and weaknesses of your current strategy so that you can analyse your succession plan critically.

Among other things, ask yourself: which aspects are well put together and which areas need strengthening? What improvements could be made to optimise the process? Above all, don't hesitate to call on external advisers - tax specialists, lawyers, consultants - to take a fresh look at your planning.

Involve your key employees in this audit too. Their suggestions will enable you to fill in any gaps and consolidate your strategy before moving on to the implementation stage.

Assert your strategic vision as owner

As owner-manager, you need to define a clear strategic direction for your SME's future after you retire. Your vision is essential in guiding succession choices, so think about the goals you set for the business in the short, medium and long term. Where do you want it to be in 5, 10 or 20 years' time? Where should it be in its target markets? What level of sales or profitability? Also specify the role that your family may or may not continue to play after your succession. Do you want to pass on the torch to your children or, on the contrary, withdraw completely from the capital?

Share your strategic vision with your key managers and the prospective successor. Explain your approach and your motivations, and get their opinions before formalising your roadmap.

A clear strategy, understood by everyone, makes it easier to take future decisions and guarantees the consistency of the actions taken by the management team, with a view to the forthcoming change of hands. In this way, your legacy is preserved.

Take an in-depth look at internal and external transfer options

Depending on the strategy you choose, there are various options available to you for organising the transfer of your SME. You need to study them carefully in order to opt for the most suitable scenario.

Family transfer to one of your children or another family member

Passing on your business to one of your children or to another family member is a common option. It allows you to keep the capital within the family fold and continue your entrepreneurial legacy.

However, you need to make sure that the prospective family successor has the necessary skills and motivation to run the company. If they don't, train them beforehand and test their abilities. Consider teaming up with an experienced manager. You should also ensure that all family members are treated fairly, to avoid conflict. Children who are not involved in the business should be compensated financially.

Selling to senior managers already working for the company

Selling your SME to in-house managers has the advantage of guaranteeing managerial continuity. These managers are already familiar with the company, its strengths and weaknesses, and its culture. They are often the best choice to take over and continue your work.

However, they do not always have sufficient equity to buy the entire capital on their own. In that case, you can support them with a vendor loan spread over several years. This gives them time to generate the cash flow needed to gradually repay the purchase price.

Another option is to team them up with a financial investor (investment fund, family office, etc.), who will contribute part of the necessary capital. In this way, your management team retains control of operational management, while the investor takes a back seat.

Selling to one or more external investors

Selling your business to a financial investor or a fund frees up your assets completely and provides immediate cash flow. But it also means losing control over future strategy. So take care to find buyers who share a vision of the company's future that is close to your own. Take a close look at their track record and the philosophy of the investment funds approached.

Earn-out and tag-along clauses can also be included in the shareholders' agreement. They allow you to be involved in the post-sale transition and protect the entrepreneurial legacy you are passing on.

A merger with another player in the sector

Linking your SME to a large group in the same business sector is an interesting option to consider. This can secure the company's long-term future by giving it additional financial and commercial resources.

However, there is a risk that the identity and agility of your structure will be diluted within the culture of the acquiring group. So be sure to negotiate guarantees that your company's operational autonomy will be maintained. Demand commitments to maintain jobs, the brand and historic sites. Key positions reserved for your executives in top management may also be considered.

Favour amicable solutions in the event of family conflict

There's no point in escalating the situation through pointless disputes if differences arise between the heirs concerned by the terms of the succession. The best solution is an amicable one in the interests of all concerned.

Encourage a calm dialogue in which everyone can express their expectations constructively. Focus on common interests rather than antagonistic positions. In the event of deadlock, don't hesitate to call on a neutral mediator who can find the arguments to reconcile points of view.

With goodwill, balanced and viable solutions can emerge. The most important thing is to dispel misunderstandings and ease tensions, so that the family can be reunited for a successful handover.

Adopt an objective assessment of the company's value

One of the trickiest stages in the sale process is for the seller and the potential buyer to agree on the value of the business. Discussions are often tinged with emotion. The owner-manager obviously has a strong emotional attachment to his business, the fruit of a lifetime's work. But the buyer is much more likely to think in more pragmatic terms. In such cases, you need to base your decision on rational financial criteria such as :

• sales, profits ;
• cash flow, assets ;
• market share, etc.

Have the company appraised by an independent professional. Above all, be prepared to negotiate the sale price realistically, while protecting your financial interests. The buyer must be able to finance an amount that is sustainable over the long term.

Protect your personal assets

Well in advance of your succession, make sure you protect your private assets and those of your family, as distinct from your business assets. Clarify what you want to pass on and what you want to keep in your personal assets. Optimise the management of your private assets as early as possible, by adopting prudent and balanced strategies to grow your assets. Diversify your investments (property, life insurance, REITs, PEAs, etc.) and take out life insurance policies tailored to your family situation and the amount of assets you wish to pass on.

Don't forget to include beneficiary clauses for your spouse and children. Above all, don't forget to draw up your will in detail, with the help of a notary, and to plan your gifts between spouses and gradual gifts to your children. This generally makes it easier to optimise taxation.

In the event of premature death, the death benefit from your life insurance policies will enable your family to maintain their standard of living and meet the costs. An informed and forward-looking wealth strategy is therefore the best way of selling your business with peace of mind while protecting the financial interests of your loved ones, in accordance with your wishes.