What will happen to your company when you retire? Succession without drama

Family businesses are the backbone of the Czech economy. More than 80% of companies in the Czech Republic are family-owned, and this is similar in other Central and Eastern European countries. These businesses are strongly tied to traditional values, but today, they face a new, inevitable challenge: the founding generation is aging and beginning to retire. This raises the important question: what will happen to their businesses?

Are family businesses at risk?

Succession planning is not just an HR issue – it’s a key strategic decision that impacts the future of the company and its market value. According to a recent Deloitte study, less than 30% of family businesses have a formal succession plan. Failing to plan properly can lead to serious issues, including loss of value or confusion during the transition. Meanwhile, the first generation of entrepreneurs after 1989 is approaching retirement. However, many are still unclear about what will happen to their business after they retire. The time to plan is now.

Succession is a process that often leads to specific business transactions, including:

• Sales mandates, where the company looks for potential buyers or investors.

• MBO (Management Buyout), where current managers buy the company from its owner to continue managing it.

• Restructuring transactions, which may involve reorganization, changes in ownership structure, or other measures to help the company adapt to the new situation.

3 challenges & strategies family businesses face in succession

1. Prepare the next generation or sell?

Family businesses are deeply tied to the personal values and stories of their founders, so passing the business on to the children may seem like the most logical step. However, the statistics speak for themselves: only a third of family businesses successfully transition to the second generation, and only 13% make it to the third.

Questions to ask yourself:

• Are the children even interested in the business?

• Do they have the management skills to keep the business running?

• Are they capable of taking on responsibility and leading the business forward?

If passing it on within the family doesn’t make sense, there’s no shame in choosing to sell to a strategic or financial investor who can preserve the value of the company – and its founder’s legacy.

2. Balancing family dynamics with professional management

The larger the company, the harder it is to manage from the living room. With growth comes the need for professional management, while ownership remains in the family. The introduction of experienced C-level managers can ensure competitiveness and sustainable operation after the founder steps down. Implementing clear management structures, such as advisory boards and family councils, can also work well.

In many cases, families opt for a hybrid model, where they retain ownership but entrust day-to-day management to experienced external managers. This increases the company’s credibility with investors and improves operational effectiveness. It also helps align family goals with company goals. However, professionalizing management is only part of the equation – resolving internal conflicts between different generations' visions for the future of the company is just as important.

3. Transfer strategy: Family buyouts or sale to external entities

If your descendants are interested in the company but lack the capital, there are ways to transfer ownership to them. Options include a leveraged buyout (where the buyer uses debt to finance most of the price of the company) or deferred payment sale.

Alternatively, the founder can:

• Sell a minority stake to private equity (a private equity fund), diversifying risks and professionalizing the company.

• Exit entirely by selling to a strategic buyer (often foreign), looking to enter the Czech market or consolidate the industry.

In recent years, we’ve seen growing interest from Western European funds and family offices in succession transactions in Central Europe, particularly in manufacturing, healthcare, and B2B services.

Practical tips for family business owners

1. Start early

Start planning your succession 5–10 years before the expected transfer. A long-term plan gives you time to consider all options, including finding a suitable successor or involving external professionals.

2. Contact external advisors

External advisors can help with emotionally challenging decisions and structuring transactions or optimizing taxes. Their experience will provide a broader perspective and help avoid mistakes that could jeopardize the company’s future.

3. Consider all options

You can choose internal succession, a partial sale, or a complete exit. Each option has its pros and cons, and it's important to make your decision based on your situation, goals, and the values you want to preserve.

4. Comunicate openly

Regular, clear dialogue between generations and stakeholders is crucial for maintaining trust and continuity. Be transparent about your plans and openly discuss the challenges you face.

Succession isn’t just business, it’s a story

Transitioning a family business to new ownership or the next generation isn’t just about numbers. It’s a process that connects the personal legacy and values of the founder with financial realities. For many Czech family businesses, a well-managed transition guarantees not only the preservation of value but also growth and continuity.

Whether the solution is a management buyout, a strategic sale, or an investor entry, the foundation of a successful transition is a well-thought-out plan.