HZ HANDELSZEITUNG Interview with Erik Wirz on succession planning

Erik Wirz in an interview with HZ HANDELSZEITUNG on succession planning

BY: DANIEL TSCHUDY

Perfect is rarely the case
Key elements of a succession plan should be integrated into a company's risk management. In theory, it's simple. Any succession plan should be considered early on, accompanied by neutral, trusted individuals and ideally executed without time constraints. It would be ideal to start planning for a possible sale of the company or the retirement of the CEO three to four years in advance. Ideally, it would be beneficial to inform key employees at an early stage and to imagine their future roles. It would also be great to have open discussions with the company's most important customers and to demonstrate the consequences of a succession process.

If only, what if
For most of the more than 601,000 small and medium-sized companies in Switzerland, however, the reality is different, especially for micro-enterprises with fewer than ten employees. External factors such as a banking crisis, a pandemic, marital difficulties, health problems, a loss of motivation or stronger competitors can all be reasons for suddenly having to find a successor.

It's even more challenging when the owner hasn't secured his financial future and has unrealistic expectations about the sale price of his life's work. In addition, potential heirs and certain tax authorities are waiting in the wings. The situation is particularly challenging for the 400,000 or so businesses with fewer than three employees, and the number is growing. In these small businesses, it becomes a very personal matter.

It is therefore highly recommended that all entrepreneurs and CEOs take a proactive approach to succession planning. Asking trusted friends for advice can be helpful, but bringing in external specialists is often a more reliable solution. Zug-based executive search firm Wirz & Partners specialises in supporting and guiding succession processes. Erik Wirz frames the issue as follows: "Firstly, you need to invest a lot of time, and secondly, you need to provide sufficient financial resources". The process often requires much more time and budget than one might expect. This includes the valuation of the business, which cannot be done overnight, and the financing of the actual sale of the business, as successors often lack sufficient liquid assets.

Risk management
It could be argued that business owners should start planning their succession from around the age of 55. However, the external factors mentioned above, including personal issues within the family or among partners, can trigger significant restructuring even earlier. Without wishing to be pessimistic, a business must therefore regularly address the issue of 'rapid change'. The issue of succession should be part of the normal risk management plan. Erik Wirz confirms this: "The greatest danger is when you have to work under pressure or when succession planning is approached half-heartedly". Often, potential successors also have misconceptions about the scope of responsibilities or what constitutes a competitive compensation package. Wirz goes on to explain: "And some business owners may even have inflated expectations about the valuation of their company."

Professional advisers can draw on their experience to help identify the types of people or businesses that might be suitable for the succession in question. These advisors can also illustrate how a sale or transfer could be carried out based on benchmarks. Erik Wirz explains: "For example, you can involve the remaining management team by offering participation and retention models, whether they are partnership models, participation certificates or even an equity partnership."

It makes sense to have a contingency plan. This document should address the roles of all relevant parties after the handover or sale of the business. Ideally, the transition of a leadership or ownership role should be staggered over extended periods of preparation, allowing successors to ease into their new responsibilities.