Far too many small and medium-sized companies are not equipped to handle illness or death of the owner-manager, and this can have fatal consequences for the company. This is the assessment from several experts.
There are around 300,000 Danish companies in the SME segment, and 80 percent of them are owner-managed and therefore particularly dependent on the owner-manager.
But many SMEs did not prepare for the situation if the owner-manager is affected by a serious illness or dies, and this can put the company’s growth and survival under severe pressure, according to the business broker M+A Business Exchange.
– A large part of the companies in the SME segment we talk to acknowledge that they do not have a plan for what should happen if the owner-manager is affected by a long-term illness or passes away. It is disturbing and poses a major problem for Danish business, says Frank Jensen, director of the M+A Business Exchange.
Frank Jensen estimates that up to half of all Danish SMEs do not have a comprehensive and detailed plan for what should happen if the situation occurs. And he emphasizes that it is far from enough to simply appoint a new director and then carry on as before.
– We have witnessed many precedents where a sudden absence of the owner-manager has sent the company into a serious storm. If the scenario occurs without a structured plan that is coordinated with the parties involved, it can damage operations and future growth opportunities, and in the worst case, the company can go bankrupt, he says.
Economic consequences
In the report ‘Personal and family challenges in connection with change of ownership’, the Center for Owner-led Companies has analyzed the consequences a company faces if the owner-manager dies or is affected by illness.
The report concludes that upon the death of the owner-manager, a company experiences an average drop in the profit margin – that of the revenue that ends up as earnings – of 23 percent, and according to the Center for Owner-Led Businesses, this helps to emphasize the owner-manager’s unique importance to the company’s operations.
The report also states that an average Danish company’s ordinary result over assets – i.e. how effectively the assets generate profits – will fall by 25 percent if the owner-manager is hospitalized for five days or more.
Focus on the difficult conversation
In order to prepare a company as best as possible for the sudden absence of an owner-manager, Frank Jensen makes a request.
– The first thing to do in such a process is to address the problem. It requires that the management team dare to have the difficult conversations and face the fact that the situation could potentially happen tomorrow. Once it has been dealt with, a detailed plan must be drawn up, says Frank Jensen and continues:
– First, a succession plan must be drawn up, where it is clarified who will take over if the owner-manager can no longer carry out his duties. This could be, for example, a senior employee or a member of the board. You must then create a well-structured and thorough documentation of the company’s processes and workflows. It includes everything from production processes and financial routines to customer management and supplier collaboration.
Frank Jensen points out that the delegation of responsibility must also be planned. In this way, the company ensures that the dependence on the owner-manager is reduced, as there are always more people who can handle important functions such as sales, production or administration.
M+A Business Exchange is a Danish company broker who works within: Sale/purchase of a company, valuations and assessment of the company’s market value, capital mediation, generational change, reconstruction and turnarounds as well as searching for companies. See more at: www.virksomhedsborsen.dk
Source: it-kanalen.dk
