Entrepreneurs face many challenges throughout their professional lives. One challenge, among the most complex an entrepreneur is likely to face, typically happens only once in a lifetime – passing on or selling their business. This unavoidable rite of passage becomes all the more emotional when the business is a family one.
In Switzerland, family-owned businesses account for over 60% of the working population and of GDP. And right now, Swiss family businesses are going through an unprecedented period of transition, as a major generational shift takes place. Entrepreneurs sometimes underestimate the preparation needed to make a success of the transfer to the next generation – a mistake which can have negative implications for the business and, indeed, the owner’s pocket.
Given that fewer than half of family businesses in French-speaking Switzerland have a precise idea of the value of their company, we asked our experts to shed light on the challenges involved in business succession, by commenting on some of the key findings from our recent study on the topic.
Succession challenges
Lombard Odier teamed up with Bilan magazine and HEG Fribourg (School of Management Fribourg) to explore today’s family business landscape. This involved surveying nearly 250 family-owned SMEs in French-speaking Switzerland, to build an all-round picture and gain an understanding of the outlook.
The resulting study addresses several themes such as business transmission, the evolution of company culture, valuation and innovation, and reveals the factors common to successful businesses. One important finding is that the speed with which companies are being passed on to the next generation is accelerating, with more than 57% having changed hands in this way over the last 15 years.
The speed with which companies are being passed on to the next generation is accelerating, with more than 57% having changed hands in this way over the last 15 years
Demographic change is the biggest cause of this acceleration, believes Maxime Dubouloz, Director Corporate Advisory at Lombard Odier, who sees this phenomenon as “the baby boom feeding through to the corporate world.” He also observes that the pace of transmission of SMEs has sped up more generally, with some entrepreneurs creating a first venture, selling it off and then establishing another.
Given this context, the finding that just 3% of heads of family businesses intend to sell up leaves Maxime Dubouloz’s colleague Nicole Conrad somewhat baffled. “We expect around 15,000 businesses in Switzerland to be sold annually over the coming years. This figure of 3% indicates that people instinctively envisage family succession and don’t plan for a sale. That can prove detrimental, given that the key to a successful transmission lies in planning ahead.”
Nicole Conrad, who is Senior Vice President with responsibility for the Entrepreneurs segment at Lombard Odier, explains that a transmission can sometimes take between two and five years due to the legal and tax considerations, before even touching on the emotional angle. “People do not admit, even to themselves, that they want or need to sell up. Those currently holding the reins may also have a tendency to misjudge the skill set of the next generation, or their desire to take over.”
Passing on and valuing companies
PwC’s global survey of family businesses has revealed a persistent trend year after year: about 30% of family businesses survive into the second generation, but barely 10% into the third. These statistics underline even further the need to plan for business transmission, whether that means organising transition within the management team and shareholder structure, or preparing to sell to other family members or third parties.
In Switzerland, succession is a crunch point for many SMEs, with around one in three businesses of this size disappearing due to lack of a buyer, according to a publication on the federal government’s SME portal. Citing a study by Dun & Bradstreet, the article also states that some 94,854 businesses were looking for a buyer in 2023, out of a total of more than 600,000 companies in the country.
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learn more Organising succession requires factual information to be gathered, such as the company’s valuation. Our survey with HEG Fribourg and Bilan magazine found that around half of respondents (47%) had a precise idea of the value of their company and 20% planned to have a valuation carried out, while 9% were not interested and 11% had never considered the matter.
When it comes to selling a family business, owners are often overly optimistic about its value
Maxime Dubouloz notices that when it comes to selling a family business, owners are often overly optimistic about its value. “The price that they expect it to fetch is frequently much higher than the value calculated based on economic criteria,” he explains. There are numerous subjective factors that come into the equation, hence the need to work with specialists in order to follow a structured, factual process to arrive at a valuation, whether it is to be handed on to the next generation or some or all of the capital is to be sold to a third party.
Whatever the circumstances, failing to prepare for a sale can prove detrimental, given that the key to a successful transmission lies in planning ahead. This is compounded by the fact that just 31% of the companies surveyed in our study have a family governance structure in place – something which could greatly facilitate decision-making and the success of transitions down through the generations.
Just 31% of the companies surveyed have a family governance structure in place
Maxime Dubouloz is not surprised by this low figure. “A large proportion of people manage their affairs in an implicit way and do not take the time to put a formal governance structure in place for their business,” he says. “This is a complex and time-consuming operation, because there are numerous topics that you need to address, some of which can be sensitive within the family.”
Family governance and opening up the board of directors
The effort is well worth it, however – it is best to have a governance structure in place before conflicts arise, Maxime Dubouloz says. “The priority for the governance structure must be to allow a business to function properly. By extension, that is also beneficial to its shareholders, whether they are family members or not.”
Another factor underlining this need for family governance structures among Swiss SMEs is that 84% of companies that responded to our survey are still managed by the family. Nicole Conrad explains that this high figure is a distinctively Swiss trait, as “the equivalent figure in our neighbouring countries is generally somewhere between 50% and 60%.” She highlights in particular the need to affirm the family identity as a brand, along with a desire to exercise influence over the business and perpetuate the dynasty. The power of “family-ness” can sometimes win out over rational considerations, she explains, stressing that in Switzerland “we are still conditioned to expect to take on the family business.”
While there can be benefits to this traditional approach, in an economy that is evolving fast it also creates risks. 53% of our respondents reported that they had just two or three people – generally family members – on the board of directors. “That is probably a bit too limiting,” believes Nicole Conrad, who highlights the importance of “bringing in some complementary expertise, as well as some outside perspective from beyond the family.” However, she does also note a recent shift towards greater openness to external advice and a younger generation who have cut their teeth outside the confines of the family.
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Study methodology
The survey was conducted by HEG-Fribourg in summer 2024. It consulted 245 SMEs, representing all the French-speaking cantons of Switzerland, which had been family-run for at least two generations. The study also benefited from the involvement of the chambers of commerce and industry for French-speaking Switzerland, bearing testament to the tremendous interest in this joint study. The results were first published in an editorialised form in Bilan magazine.
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