Portrait of KERN founder and specialist Nils Koerber smiling, in black and white

Compa­ny succes­si­on in family businesses: 6 pitfalls

When it comes to passing on a family business, the process can be complex and full of poten­ti­al pitfalls. As the saying goes: “Those who fail to plan, plan to fail”.

It is there­fo­re important that families Consider all aspects of business succes­si­onto ensure a successful transi­ti­on. In this artic­le we look at some of the most common issues that arise when trans­fer­ring family businesses.

From inade­qua­te commu­ni­ca­ti­on to inade­qua­te succes­si­on prepa­ra­ti­on, these six pitfalls can spell disas­ter for any business looking to pass on its legacy.

How is the market for business succes­si­ons developing?

We at KERN have develo­ped its own nation­wi­de follow-up study. We took a closer look at the age groups of the owners and the number of businesses in the German chamber districts.

The situa­ti­on is more serious than we percei­ve in every­day life.  From our point of view, those politi­cal­ly respon­si­ble have still not recog­nis­ed the problems arising from the wave of business succes­si­on in family businesses and the resul­ting econo­mic problems.

Due to the enorm­ously high degree of small­ness of the compa­nies and struc­tures, this creeping process is not parti­cu­lar­ly noticeable. More than 90 % of German compa­nies have fewer than 25 employees. And if they disap­pear tomor­row, it will only be noticed years and years later. higher pace of corpo­ra­te destruc­tion really in the conse­quence. If the genera­tio­nal change in our family businesses does not succeed, our prospe­ri­ty is threatened.

Graphic on succession planning in family businesses

A soluti­on approach

There is no such thing as the only soluti­on that makes you happy. At KERN, we think a lot of the Princi­ple of perso­nal respon­si­bi­li­ty. If entre­pre­neurs really take the succes­si­on issue serious­ly and see it as the greatest entre­pre­neu­ri­al chall­enge par excel­lence, a large propor­ti­on of all succes­si­on issues in family businesses should be solvable.

But I have to want it and get invol­ved. With time, too, becau­se business succes­si­ons rarely succeed under pressure.

Support from experts

Compa­ny succes­si­on is extre­me­ly complex. It concerns Legal, econo­mic, tax and emotio­nal issues. And every­thing is massi­ve­ly interwoven.

As a compa­ny owner, I can’t and don’t have to know every­thing myself, and I should Experts for this special field. Compa­n­ions who have exact­ly this experi­ence and, like on a deman­ding tour in the mounta­ins, bring me safely to the desti­na­ti­on as a mountain guide. Without crashing and ideal­ly also without detours.

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Common pitfalls of succes­si­on in family businesses

From how the retiring manage­ment plans for retire­ment to how to deal with emotio­nal issues, there are some common issues when it comes to succes­si­on in family businesses. Pitfalls that should be avoidedso that the transi­ti­on goes smoothly.

Chart of the 6 hurdles to business succession in family businesses

1 Unclear succes­si­on plan

One of the most common pitfalls in family business succes­si­on is unclear succes­si­on planning. Without a Defined strategy for the hando­ver of the compa­ny to new leader­ship, it can be diffi­cult for families to ensure a smooth transi­ti­on of owner­ship and management.

Unclear succes­si­on plans can lead to misun­derstan­dings between family members, Poor decis­i­on-making and hosti­li­ty among family members lead. It is important that family businesses create a clear plan that sets out who will take over the business, how they will perform their role and what respon­si­bi­li­ties are invol­ved. This requi­res open conver­sa­ti­ons and clari­ty about the needs of everyo­ne invol­ved in the process.

2 Lack of family involvement

Lack of family invol­vement is also a common problem scena­rio. Without the full commit­ment of all the family members invol­ved, it can be diffi­cult to Smooth succes­si­on planning and a successful transi­ti­on from one genera­ti­on to the next.

It is important that owners of family businesses ensure that key family members are invol­ved as early as possi­ble in decis­i­on-making and the Commu­ni­ca­ti­on about succes­si­on planning be invol­ved. This will help create an environ­ment where everyo­ne under­stands their role and respon­si­bi­li­ty in the process and can work together towards a successful outcome.

Or it becomes clear early on that a succes­si­on within the family will not be possi­ble and the search for an exter­nal soluti­on comes to the fore.

3 Lack of profes­sio­nal advice and expertise

One of the most common pitfalls in family business succes­si­on is the Lack of profes­sio­nal and objec­ti­ve advice and exper­ti­se. Succes­si­on planning requi­res an under­stan­ding of legal, finan­cial, econo­mic and tax issues as well as a clear plan for the future of the business.

Sign for alarm or attention

Without access to profes­sio­nal counsel­ling and exper­ti­se, families may not be able to proper­ly address these issues or develop a viable succes­si­on plan. Emotio­nal entan­gle­ments, overt or covert, add to the chall­enge for all involved.

In additi­on, due to inexpe­ri­ence and lack of under­stan­ding, families may not have the neces­sa­ry resour­ces to facili­ta­te a successful transi­ti­on. Profes­sio­nal counsell­ors who are not emotio­nal­ly invol­ved can help at this criti­cal time. Provi­de invaluable assis­tance and provi­de valuable support to achie­ve the goals.

Just the ‘trans­la­ti­on’ and ‘inter­pre­ting’ in a family in this process is of utmost importance.

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4 Do not define clear areas of responsibility

One of the most common pitfalls in business succes­si­on is omissi­on, Define clear areas of respon­si­bi­li­ty. Without clear­ly defined respon­si­bi­li­ties and expec­ta­ti­ons, it can be diffi­cult for family members to know exact­ly what each person needs to do to ensure the success of the business.

And if the family doesn’t under­stand it, how will the employees be able to under­stand it?

This lack of clari­ty can lead to confu­si­on and ultim­ate­ly to a Break­down of commu­ni­ca­ti­on between family members which in turn can lead to deepe­ning dispu­tes over roles and respon­si­bi­li­ties. It also increa­ses the risk of important tasks not being done or being done incorrectly.

And when employees leave the compa­ny in frustra­ti­on becau­se of so much ambigui­ty, the damage is alrea­dy greater in advance.

5 Unrea­li­stic expectations

Not infre­quent­ly, unrea­li­stic expec­ta­ti­ons regar­ding the transi­ti­on from one genera­ti­on to the next are also a conten­tious issue. For examp­le, they expect A smooth and timely transi­ti­on, while in reali­ty it can take several years to imple­ment a successful succes­si­on plan.

In additi­on, the family members may have diffe­rent ideas about how the business should be managed and what role each indivi­du­al should play in the new struc­tu­rewhich can lead to diffe­ren­ces of opini­on and disagreements.

Final­ly, family members may not under­stand their own roles and respon­si­bi­li­ties within the business or do not have enough experi­enceto run it effec­tively, which can be diffi­cult for owners and managers.

If you take the time to set reali­stic expec­ta­ti­ons about the roles of managers and owners, and develop a compre­hen­si­ve succes­si­on plan, you can make the Successful­ly managing the transi­ti­on of a family business.

6 No prepa­ra­ti­on for retirement

Without a suita­ble plan, even the senior boss may face problems after the genera­ti­on change. The Retire­ment plans must be careful­ly preparedto ensure that, for examp­le, adequa­te finan­cial securi­ty is guaran­teed for Senior and the family in the years to come. At the same time, this securi­ty must not overbur­den the finan­cial perfor­mance of the enterprise.

Further­mo­re, it is important to poten­ti­al tax effects must be taken into account, associa­ted with retire­ment and estate planning, as well as other factors such as liqui­di­ty manage­ment and asset distri­bu­ti­on. Negle­c­ting even one of these aspects can lead to a failure of the business succes­si­on and leave behind costly mista­kes that could have been avoided with proper planning.

Why do family entre­pre­neurs find it so diffi­cult to change generations?

Challenges for senior entrepreneurs in business succession

Basical­ly, there are three reasons why trans­fer­ors find it so diffi­cult to let go:

  1. The entre­pre­neur lacks a vision or a goal for the time after. This would be the decisi­ve motiva­ti­on for this important step. What should I look forward to and why should I let go when nothing is ‘waiting’ for me?
  2. Many compa­ny leaders also feel that they themsel­ves are being called into questi­on with the hando­ver. And it doesn’t matter whether you sell the compa­ny or hand it over to the next generation.
  3. Lack of or incom­ple­te precau­tio­na­ry measu­res. Owners of smaller businesses in parti­cu­lar have diffi­cul­ties in making a living as a result.

The princi­ple of perso­nal responsibility

Anyone who has worked respon­si­bly in their ’system’ day in and day out for many years, even decades. compa­ny rarely takes the time early on to Time for these weigh­ty questions.

From our point of view, however, it is precis­e­ly Princi­ple of perso­nal respon­si­bi­li­ty, which is lived out entre­pre­neu­ri­al­ly in every­day life. However, it is often forgot­ten for the very priva­te planning of life. Sounds a bit unusu­al, but it is really hard for senior entre­pre­neurs. It’s like learning something new. To look at something unknown. Even if it is myself.

We recom­mend that every donor take a break from every­day life for 1-2 days and ask themsel­ves questi­ons in their own silence.

  1. What gives me lasting pleasu­re today and in the future?
  2. What could be the meaning of my succes­si­on solution?
  3. Who am I when I am no longer an entre­pre­neur and what am I looking forward to?
  4. And what do I have to do to achie­ve these goals?

Compa­ny succes­si­on through one’s own children

Ideal­ly, child­ren should know and also be able to feel that a Taking over the paren­tal farm can really be volun­t­a­ry. I can, but I don’t have to. And there is no relati­onship drama between parents and child­ren or even withdra­wal of love. As a child, I am really free to decide whether I feel called to do so.

And the same is true for the parents, the people who hand over a compa­ny. Child­ren must also make their contri­bu­ti­on in their educa­ti­on and quali­fi­ca­ti­on so that the compa­ny recei­ves the leader­ship perso­na­li­ty it needs for the new future.

The enter­pri­se that feeds everyo­ne has requi­re­ments for future leader­ship. What quali­ties are needed in leader­ship? And is it then really the new genera­ti­on that will successful­ly solve this task in the future?

Are the child­ren prepared to align their educa­ti­on and quali­fi­ca­ti­ons with this?

And depen­ding on their develo­p­ment, parents should then also have the freedom to decide differ­ent­ly if neces­sa­ry and sell their business.

This is something that both sides have to accept.

When child­ren do not want to, cannot or are not allowed to

A trend that, accor­ding to our estima­tes, is now Every­day life for a good 60 % of German family businesses is.

If it is certain that no soluti­on is to be expec­ted within a family in the genera­tio­nal transi­ti­on, the Sale of the compa­ny is defini­te­ly a good alternative.

It doesn’t mean that something doesn’t work, but that the story can’t conti­nue to be written in the respec­ti­ve family. However, there are many other indivi­du­als or compa­nies who are certain­ly interes­ted in an exter­nal succes­si­on soluti­on. And behind them are usual­ly other families, the majori­ty of them.The middle class thus remains in family hands and the special cultu­re of family businesses is trans­fer­red to a new family.

What are the alter­na­ti­ves to a genera­ti­on change within the family?

There are basical­ly two possi­bi­li­ties here:

  • On the one hand, there is the Compa­ny sale to an exter­nal buyer to menti­on. These are often also family entre­pre­neurs. This preser­ves the family corpo­ra­te culture.

On the other hand, there is the chance of Sale to an employee, MBO (Manage­ment Buy Out) called.

Succes­si­on soluti­ons with the employees of a company

A so-called Manage­ment Buy Out MBO often even makes succes­si­on easier. The execu­ti­ve knows the compa­ny and thus hardly needs any training. After all, the senior employees of the compa­ny in questi­on know the entity from the FF and usual­ly enjoy the trust of employees, custo­mers and suppliers.…

Both sides, the trans­fer­or and the trans­fe­ree, know what to expect and what is important.

At the same time the finan­cing of a transac­tion also make such a soluti­on parti­cu­lar­ly difficult.

Not every employee of a family business has the priva­te means and can set up his or her own finan­cing. If the trans­fer­or is not prepared to help, the inter­nal succes­si­on in the business will not work.

Finan­cing options

There are many diffe­rent possi­bi­li­ties. We menti­on two models as very frequent­ly chosen approaches:

  1. Part of the Purcha­se price is designa­ted as a vendor loan and thus the trans­fer­or becomes a further finan­cing partner of the trans­fe­ree in additi­on to a bank.
  2. The shares are trans­fer­red step by step over the years. The succes­sor can thus try to earn part of the finan­cing himself. Of course, these models also have their risks. These must be weighed up against an exter­nal succes­si­on by outside buyers.


Succes­si­on in a family business is an important process that, due to the Comple­xi­ty of the family dynamic can be a challenge.

Pitfalls include misali­gned goals between genera­ti­ons, unclear roles and respon­si­bi­li­ties, diffi­cul­ties in trans­fer­ring owner­ship and control, lack of commu­ni­ca­ti­on and trust between family members, inade­qua­te finan­cial planning and a lack of legal structure.

With careful conside­ra­ti­on and planning these pitfalls can be avoided and the transi­ti­on to the next genera­ti­on of leader­ship can be successful.

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