Many business owners find that selling their company and finding a suitable successor takes longer than expected. On top of that, most are unaware of the ways to significantly reduce the high tax burden – especially on proceeds above 500,000 euros.
The five biggest mistakes when selling a business
- Poor preparation (starting too late and not developing a plan)
- A superficial and overly optimistic company valuation
- Underestimating psychological and interpersonal factors
- Not bringing in specialist experts in order to save money
- The owner has unrealistic expectations of the successor
Interview with Prof. Dr. Ralph Landsittel
Michael Rehberger spoke about this with an expert in business succession: Prof. Dr. Ralph Landsittel of the law firm Rowedder Zimmermann Hass in Mannheim.
Michael Rehberger
Where do you see the biggest challenges for your clients when it comes to arranging their succession?
Prof. Dr. Landsittel
The biggest challenge is deciding when, and to whom, a company should be handed over. That is a process which takes a great deal of time and has to mature. This time horizon is usually underestimated, though – by advisers as well.
The biggest problem with a succession within the family is whether the potential successors are suitable or qualified, and whether they are willing to devote themselves to the company as intensively as, say, their father did. Psychological factors play an important role here.
With a succession outside the family, the biggest problem is the attitude of the banks, which are often reluctant to finance such undertakings. An analysis of the company’s weaknesses is also crucial – for example with regard to structures that are in place or missing. Owners handing over their business sometimes lose sight of reality in this respect, which in turn can lead to unrealistic price expectations.
Michael Rehberger
In your view, how much time should be allowed to prepare a handover?
Prof. Dr. Landsittel
From the first considerations to implementation, you should ideally allow two years. The earlier the planning process begins, the better the chances of a successful outcome.
Michael Rehberger
In your opinion, what are the most common mistakes made in business succession?
Prof. Dr. Landsittel
The biggest mistake is to do nothing at all, because then statutory succession applies – and experience shows that this always goes wrong.
Another mistake is starting to plan too late. Since summer 2013, the legal situation has made it essential for the transfer to take place between living persons on a specific cut-off date, rather than only upon death. Otherwise you risk a heavy burden of inheritance and gift tax that often cannot be shouldered.
Tax relief of 100 or 85 per cent is only possible – if at all – with very detailed planning. Many of those affected, however, are not aware of this.
Another common problem is the valuation method: the simplified capitalised earnings method prescribed by law is no longer tenable.
Planning early pays off
Let’s talk about how to reduce the tax burden on the sale of your business. I look forward to hearing from you!
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