According to a recent study by KfW Research, approximately 560,000 companies are facing a change in management and ownership by the end of 2026. However, one-third of these companies plan to exit the market without a successor. This high number is not surprising. Succession has become a major challenge for many medium-sized businesses.
Whether, for example...
...because there is no potential successor within the company's own ranks and no one can be found,
...because the company is not in a position to be handed over—meaning it is not attractive to potential successors or a succession cannot be realized,
...because the succession process was started too late,
...or because the interested party faces difficulties with financing.
The challenges are diverse and affect the entire SME sector. Overall, the number of people interested in taking over a business has dropped significantly. This is partly due to demographics, and partly because interest in entrepreneurship has been waning for years. Furthermore, the current unstable economic climate and numerous crises make succession more difficult. Companies in crisis mode, focused on survival, invest little time in managing their own succession processes.
It is a central entrepreneurial task to approach the topic of succession with a clear strategy and a sufficient timeframe. This can significantly improve the prospects for a successful succession arrangement that is satisfactory for both the entrepreneur and the company.
The right time to develop a succession plan: Now.
Succession planning cannot start too early. Ideally, the topic should accompany the company from the very beginning. However, you should allow at least three to five years for the handover. Succession and handover processes are complex—on economic, legal, tax, and emotional levels. The latter is particularly relevant for family businesses.
Creating clarity, offering perspectives: Family-internal succession
Succession in family businesses is often a multi-layered process. The triad of the entrepreneur family, the family business, and ownership presents many hurdles during the succession process. These can include unclear or differing expectations among family members, questions regarding fairness in distribution among children, or a lack of clear goals for the handover. This is why succession processes have a strong emotional component. For the predecessor, handing over a company always means saying goodbye to their life's work. The senior must be able to let go, and the junior must be ready to take on responsibility and lead the company into the future with confidence and independence. Preparing for this role requires sufficient lead time.
Once a successor has been identified within the company's own ranks, it is essential to systematically develop their skills and enable them to meet current and future business requirements as effectively as possible. A potential successor must be able to rely on transparent knowledge transfer to be best prepared for the leadership position by the predecessor. The goal of the succession process is for the junior to build important entrepreneurial skills while the senior transfers valuable specialized knowledge as seamlessly as possible. To avoid conflicts, it is important to discuss and agree on goals, wishes, and conditions from the start to create a clear foundation for all involved. Well-thought-out succession management with strategic knowledge transfer ensures the best possible framework for a successful process and reduces the risk of disruptions to operations. Furthermore, it creates the foundation for independent decision-making and new strategic priorities.
But what if there is no potential successor—or if they are unwilling or unsuitable to take on the family business legacy? In this case, various succession options can be considered. It is important that companies act in a timely and forward-looking manner during the handover and takeover processes.
External management or sale: Alternative succession solutions
Appointing an external manager is a good option if there are no suitable successors within the family, but the company is still intended to remain in family ownership. This succession solution is also useful for bridging a gap between two generations—for example, if the successor is still too young or not yet sufficiently qualified at a given time. Beyond the many hurdles, hiring an external manager also offers many opportunities: an outside perspective can identify untapped potential, drive innovation, and provide fresh momentum to the business. Clear agreements and a systematic approach are important in the collaboration between the entrepreneur family and the external manager. Decisions and transactions requiring approval, as well as roles and areas of responsibility, should be clearly defined and delineated. Close coordination, continuous knowledge transfer, and regular feedback between the external manager and the owner family form the foundation of a functioning partnership.
If the company cannot be succeeded by a family member, a sale is another possible form of handover. The buyer can be another company, an employee from within the company (Management Buy-Out), or an external person (Management Buy-In) who joins the company from the outside.
Whether the company is passed on within the family or another succession solution is chosen depends on individual factors. The key success factor remains a clear definition of the owners' objectives and a strategic, logical approach.
THE MAK'ED TEAM is an experienced partner in developing succession solutions, guiding companies through the creation of individual succession strategies. Strategic succession management, including a contingency plan, is an essential component of corporate development and management. To achieve your defined goals, we develop a concrete roadmap for your company, outlining all key steps in the succession process—transparent, prudent, and forward-looking.
You can find more on succession here.
Sources: 2022 DIHK Report on Business Succession by the Association of German Chambers of Commerce and Industry; 2022 Succession Monitoring by KfW Research, DER MITTELSTAND 5/2023
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