Széchenyi 2020

Generational change

Who will carry on my company if I am no longer around? Generational change

“Entrepreneur over the age of 60 with a serious corporate background is looking for a solution for a company on the path of extinction.”

  • Entrepreneur

 

There are plenty of companies and family businesses today facing the problem of replacing the owner. Generational change is a watershed in every business life. According to international experience, only 30 percent of first-generation family businesses can pass on the business successfully to the next generation. The fate of the majority, 70 percent, depends on whether the company manages to sell the business without compromising continuity, unless the sale is concluded the entire company could fail.

“This is the best time to say a smart word to any parent who has an adolescent son. Find out if you can what your son wish to do and for God’s sake – and also for the benefit of your son – let him do it! No parent should force a child to do what the parent wants; the child himself should decide! It’s about his life; livings his own life. He has every chance to prosper in case he has serious aspiration and is allowed to follow his desires.”

Roy Chapman Andrews

Then the kid will carry it on, even though he is still working abroad right now!

Unfortunately, in most cases, the existence of the above problems is not known or not acknowledged by entrepreneurs, or they are only confronted when there are already serious problems in the management of the company. The biggest problem is that most entrepreneurs lack a conscious succession plan, not paying enough attention to the question of what the fate of the company will be in case he is no longer capable or ready to take the business any further. As a result, when the issue becomes acute, there is no opportunity or time to find an optimal solution to the following problems.

Why is generational change difficult for family businesses?

Because they do not deal with the following problems:

Family issues

The resigning owner has no successor or the heir does not want to take over the business.

Lack of competence

Although the new generation wants to take control, it lacks the right expertise and management skills to do this in a successful way.

The corporate governance system is inefficient

Most family businesses are - in fact - one-man shows, meaning everything depends on the owner-manager.

What result this unclear situation may implicate?

This structure hinders the growth of a competent middle management team within the company, who could take over the management of the company if necessary, and could help the next generation to manage the company.

Possible scenarios

Possibility I.

Retaining company ownership and involving professional management

When replacing a first-generation entrepreneur, the model in which the founder retains ownership of the firm and appoints an external management to run the business is less effective. Principal reason for this the fact that the owner is mostly unable to release himself from daily decision making. He simply can’t let go the company mainly because he’s still financially dependent on it. This usually leads to a permanent conflict with the new management, since no real generational change occurs. Moreover, the external management is not motivated to the same extent as a founding owner since the management does not acquire ownership in the company.

Possibility II.

Selling the company as a whole

As it is also demonstrated by international examples, the most effective solution for a family business where family inheritance cannot be resolved is the sale of the company as a whole. The principal question mostly is the selection of potential buying party and take-over method:

Strategic investor

Internal management buyout

External management buyout

III. Possibility

Selling and retaining at the same time: head to BSE Xtend

Entry to the public capital market is the optimal solution. The issuance of securities provides the right answer to the biggest dilemmas of the outgoing generation: they can sell part of the company and stay in the business while professional management takes over the running of the company business.

NAVIGATOR solution

NAVIGATOR Investments will accompany you and your company through the process of generational change, ensuring that the goodwill created by the outgoing owner is maintained, providing a full range of services. It keeps in mind the preservation of corporate values and culture and oversees smooth transition.

In what scenarios you need our services?
Can't locate investors?

Don’t have a relationship with investors who could buy the company, and don’t know how to look for such investors?

Can't find professional management for your company?

Lacking a network of contacts enabling to find professional management or - often - encountering with difficulties in motivating the external professionals.

Problems with the sale of the company?

Problems with the process of sale of the company and finding the common language with potential investors.

What we can offer
Developing and implementing an inheritance strategy
If necessary providing interim management or coaching for the duration of the changeover
The development and formation of appropriate new management
In case of ownership exit (sale of the company), due diligence and evaluation services.
Lecture by Zoltán Jutasi on company inheritance

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