Generational succession in an SME: how to plan it

Generational succession is the most delicate moment in the life of a family business, and at the same time the one that is postponed longest. As long as the entrepreneur is at the helm everything works, but the value built over decades can dissipate in a few years if the handover is not prepared. The statistics on family businesses are well known and severe: the share that survives into the second generation falls significantly, and by the third the decline is even more pronounced. Not through bad luck, but through lack of planning.

Why it gets postponed (and why that is a mistake)

Postponing is human: to speak of succession means confronting your own exit from the stage, putting family relationships on the table and admitting that the children may not want to, or may not know how to, run the company. These are uncomfortable conversations. But generational succession is not an event, it is a process that takes years. Those who face it only when forced — through illness, age or a purchase offer — face it in the worst conditions, with no room to manoeuvre and haste as a bad counsellor.

The phases to oversee

A well-conducted handover passes through several distinct phases, which must be tackled in the right order.

Analysis of the situation. First of all, you need to understand what is being transferred: what is the real value of the company, which functions still depend on the entrepreneur, which skills are missing in the next generation, what are the expectations of the individual family members. Without this snapshot, every decision is rushed.

Choice of direction. There are essentially three roads: transfer to heirs, sale to internal managers, or sale to third parties. There is no right answer a priori: it depends on the will and abilities of the heirs, the nature of the business and the family’s objectives. It is also legitimate to discover that no heir wants to take over: better to know it in good time.

Preparation. If the choice is family continuity, the next generation must be trained and tested with growing responsibilities, well before the handover of the reins. At the same time, the structure of the transfer is built and future governance is defined.

Execution and accompaniment. The actual handover must be gradual. An abrupt change at the top destabilises clients, suppliers and employees. A period of side-by-side work, with clear roles, reduces the risks.

The methods of transfer

On the technical side, the transfer of a Swiss SME can take place in several ways, often combined:

• Gift or inheritance of the quotas (of a GmbH) or the shares (of an AG), which moves ownership to the heirs during life or on death;
• Sale to family members, to managers or to third parties, with the proceeds of the price entering the family’s assets;
• Preliminary corporate reorganisation, for example by contributing the business into a structure better suited to the handover or separating the real estate from the operating activity.

Each method has different implications for liquidity, control and tax treatment. The choice must be built on the specific case, not copied from a template.

The tax aspects

The taxation of the handover depends heavily on the chosen form and the cantons involved, because taxes such as those on inheritance and gifts are a cantonal competence and vary significantly, often with preferential treatment for direct descendants. The distinction between private capital gain and income, the handling of business real estate and the treatment of reserves also affect the outcome. Precisely because the variables are many and territorial, these profiles must be checked in good time and case by case, avoiding taking exemptions or rates for granted.

Governance, the real knot

The most frequent mistake is to focus only on the tax aspect and forget governance. When ownership fragments among several heirs, some active in the company and others not, clear rules are needed on who decides, how profits are distributed, how a stake is valued and can be sold. Without these rules, conflicts are almost certain.

The typical instruments are the family pact or shareholders’ agreement, which governs relations between family members, and articles of association built to manage the handover. Defining these rules in advance, when relations are good, is much easier than negotiating them in the middle of a crisis.

Starting early

The golden rule is simple: start early. Five, better ten years before the planned handover. This gives time to train the heirs, optimise the structure, handle the tax aspects without strain and, above all, build consensus within the family calmly.

At SIH ONE we support entrepreneurial families through the entire journey: analysis, choice of method, tax and corporate structure, family governance and accompaniment of the handover.

Are you thinking about the future of your business? Let’s plan the succession together.