That would be like buying a bakery knowing that every day five of the best cakes have to be given away for free - such a calculation would cause any businessman to shake his head uncomprehendingly. This situation now occurs, however, increasingly when selling companies: The vital issue here are "company pensions", and these pensions impact quite noticeably even on the most attractive balance sheets.

Pension plans for former employees definitely support a good working relationship and are, without any doubt, notable incentives for the workforce. However, ongoing and very high pension payments for example for the former owner of the company or high-ranking members of the board of management represent a significant burden and no advantage in connection with the sale of a company.

Already in advance and before the pensions have to be paid out, the balance sheet is altered, which, later on, significantly complicates any realistic assessment of the company.

The reason for this is almost self-explanatory: Since pension payments have to be made eventually as predetermined, adequate precautions have to be taken in good time. For this, companies are usually building up financial reserves. These reserves, in turn, originate from the profits of a company.

But lower profits mean, at the same time, reduced taxes. This reduced tax burden automatically increases liquidity and thus also the willingness of a company to make investments. This still sounds quite positive - at least regarding the actual state of things - the worse is yet to come in the future.

When someone in his function as the owner of a company is looking forward to his pension payments without having additionally set aside money, he might come away empty-handed because there are many reasons why the hoped-for windfall will not materialize subsequently.

The problems encountered more and more frequently are for example reinsurances which cannot fulfill the pension expectations. This results in capital gaps - both for the pensioners and for the company.

A changed economic situation can also affect pension payments - for example if the company is in need of the contributions put away for the pensions in order to stay competitive.

Especially for entrepreneurs at a retirement age, the above-described negative phenomenon additionally occurs, i.e. as soon as a company is no longer able to achieve sufficient turnover on the market - and, moreover, cannot be sold owing to its legacy issues - the pension payments will obviously not be paid indefinitely.

Contracts concluded in good time for example with additional reinsurance undertakings, outsourcing of pension payments to external providers and financial settlement payments to beneficiaries could work as a kind of safety net - the possibilities mentioned are, however, not one hundred percent sure and above all cost-efficient - neither for the pension recipient nor for the company.

To keep all options open despite pension payments when selling a company, it is recommended to create transparency within the company right from the very start: What has been promised? Which security has been provided for the aspired pension payments, and which possibilities exist to change the payment modalities in retrospect?

If these items have been observed, the potential buyer will know immediately where he stands, and there will be neither hidden payment obligations nor other negative surprises. And nothing will stand in the way of a potential sale - if everything else is ok.

Responsible for press information and enquiries:

Janina Krah

Telephone +49(0)7031 - 688-40-18
j.krah(at)vememas(dot)de