Challenges & solutions in the sale of family-run companies

The sale of a family-run company is much more than just an economic transaction. For many owners, it means the completion of a life’s work, marks a generational change or opens up new perspectives for the company. We regularly encounter structural, tax, legal and, not least, emotional issues that require early and professional preparation, in particular in the German SME sector.

This article highlights 14 key topics that are always crucial in consulting practice.

Strategic and organizational decisions

1. Early preparation instead of sales pressure

An orderly sales process takes time. Ideally, internal preparations should be started two to three years before the intended sale – from the company organization to the balance sheet structure and contractual arrangements. A structured approach in good time not only creates trust on the buyer's side, but also increases the company’s value.
 

2. Companies with a strong identification with their owner are difficult to sell

From a potential buyer’s perspective, a company that is largely dependent on the personality, expertise or contacts of the owner is fraught with considerable risks. A clear delegation of tasks, the establishment of a second management level and the documentation of processes and customer relationships increase independence – and therefore salability.
 

3. Internal succession is not always possible

If the next generation is not interested or not qualified, family succession is often no longer an option. In these cases, an external sale is not only an alternative, but often also the more sensible solution from an economic point of view - especially in comparison to ceasing the business, which regularly results in high liquidation costs.
 

4. Family interests, emotions and decision-making processes

The sale of a family business is rarely free of emotion. Differing expectations within the family, cross-generational interests and personal ties can complicate the decision-making process. Transparent communication and – if necessary – external moderation help to avoid conflicts and find a common approach.

Financial, tax and structural aspects

5. Balance sheets with need for optimization

It is not uncommon for balance sheets to contain formal inconsistencies or items that are difficult to comprehend from an economic point of view – such as provisions, the valuation of receivables or the statement of assets. An independent audit by a consultant with transaction expertise can identify potential for improvement at an early stage and strengthen your position in relation to buyers.
 

6. Make effective use of tax structuring options

The sale of a company has significant tax implications. Under certain conditions, individuals can benefit from the reduced tax rate under Art. 34 EStG (German Income Tax Act). If the sale is made via a holding GmbH, only a notional share of 5 % of the capital gain is subject to taxation. The partial-income method (60 % taxable) can also offer advantages. Choosing the right structure is crucial for the tax burden.
 

7. Real estate structures require special attention

In SMEs, operational property is often held as special business assets by individual shareholders or as private property. This can lead to a business split, which is problematic from a tax perspective. Long-term rental agreements or a transfer to a commercial GmbH & Co. KG can help to reduce risks and create clear structures.
 

8. Asset deal or share deal – effective structure

The decision between an asset deal (sale of individual assets) and a share deal (sale of company shares) affects both the tax burden and liability issues. While a share deal often results in tax advantages, the asset deal is often more transparent for buyers. The choice of structure should be based on a sound analysis of the individual circumstances.
 

9. Supplementary inheritance tax and corporate tax advice

A company sale is often part of a broader asset strategy – for example, in the case of compulsory portion rights, family foundations or the question of how the purchase price will be distributed later. Corporate law issues such as compensation arrangements, pool agreements or the position of individual shareholders should also be clarified at an early stage.
 

10. Business rationale

Potential buyers expect a coherent business rationale for the valuation of the company – for example, on EBIT development, investment strategy or market position. If you only determine the value of your company “on instinct”, you are generally giving away room for negotiation. A comprehensible derivation based on reliable key figures is essential.

Process support and preparation on the buyer’s side

11. Preparation for buyer due diligence

Buyer due diligence is not just a formal process, but a key instrument for risk assessment. Entering the process with incomplete documents, unanswered questions or a lack of structure will weaken one’s negotiating position. The seller’s preparation for this process is essential – in terms of content, legal and organizational aspects.
 

12. Careful contract drafting provides security

Purchase agreements must be individually tailored to the transaction. In addition to the purchase price, they also regulate guarantees, liability, payment terms and possible re-investments. Standardized contracts or one-sided templates entail considerable risks for sellers. Legal support with experience in selling companies is indispensable. 

Advice and implementation

13. Transactions often overwhelm traditional advisory situations

Long-standing tax advisors or trusted lawyers know the company very well – but they do not always have the special expertise a complex sales process requires. In such cases, it makes sense to add specialists with transaction expertise to the existing team of advisors in order to strengthen existing structures and provide professional support.
 

14. Multidisciplinary consulting as a success factor for SMEs

The sale of a company combines tax, legal, business and often also family issues. At Baker Tilly, lawyers and tax advisors work closely together on a multidisciplinary basis – with many years of experience in supporting the sale of medium-sized companies. This integrated advice enables structured, forward-looking and legally compliant implementation, tailored to the individual requirements of family businesses.

Ready for takeover – but not without preparation

The sale of a family-run business is a complex process with many influencing factors. Starting early, creating the right structures and seeking professional support not only increases the company’s value – but also ensures that your life’s work is continued in good hands.