Many entrepreneurs aged 35-40 at the time, took advantage of the market opportunities opened up by the change of regime and as a result of their work, the Hungarian SME sector has been built up. Now, these entrepreneurs want to take a well-earned rest after a long working life, but who will take over the business?

The Hungarian SME sector is extremely heterogeneous, with a wide variety of firms ranging from the “grocery at the corner” to the professional engineering firm with 30 employees. Each firm is faced with the problem of generation change in very different situations and has to respond to it in different ways. Let’s take a look at typical cases.

  1. Self-employed micro-enterprise, where the future depends on family members.

These businesses operate in a market where they have many competitors and the clientele is typically linked to the founder: electrician, lawyer, gynaecologist, dentist. For this type of business, the cornerstone of generation change is the thorough induction of the family member taking over the business, provided that there is a family member able and willing to take over the family business at all. The personal nature of such businesses makes them difficult to sell, so if there is no successor in the family, the business must be prepared for liquidation.

  1. A company under the leadership of a dominant founder, with a suitable successor within the family.

In this type of family business, a generation change is feasible, one of the most important elements of which is that the incoming family member takes over from the founder in time and becomes a full-fledged manager, who no longer needs to be supported from the background. Of course, the new family member should also be introduced to the existing business relationships and run the business in parallel, even for years, and then help the new leader from the background.

  1. Multi-generational business, where several family members are actively involved in the running of the business.

The generational change may seem simpler than the type of business mentioned in point 2, but the selection of a new manager can lead to hierarchical struggles, which can ultimately mean the end of the business. For this reason, it is necessary to clarify at the beginning of the generation change who will be the successor, who will have the final say on a particular issue, possibly by dividing up the different areas, and clarifying who is responsible for which area with precise internal organisational rules.

  1. Family business without successor.

In the absence of a successor, the choice is between selling the business or liquidating it. However, the business must be prepared for the sale: the processes and accounting must be transparent, otherwise the new owner will not be able to take over the business smoothly overnight. As an essential element, it is typical for the founder to be re-employed by the new owner as a consultant on a contract or employment basis to help with the transition.

Whatever type of business you are dealing with, some legal assistance is essential to help you on your chosen path, but the key is to start preparing early. In our next article, we will show what can happen if the founder does not think about succession in time.

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