Financial Planning for Family Offices: The New Reality After Selling the Business

From Entrepreneurial Family to Investor Family:

The Turning Point After the Exit

The sale of the family business is complete. The transaction is closed, the profits have been realized – and suddenly the family faces a completely new reality: instead of running an operational business, they must now professionally manage and develop significant wealth. This is a fundamental paradigm shift that many entrepreneurial families underestimate.

This is precisely where the critical work begins – not with wealth accumulation, but with wealth optimization. Most entrepreneurial families have run a business their entire lives. They understand operational metrics, markets, and competition. But financial planning at the wealth and family level? That's new territory. And this is precisely where the biggest mistakes and missed opportunities arise.

What is a Family Office, really – and why do you need one?

At its core, a Family Office is a structured management system for a family's wealth. It simultaneously pursues several objectives: the sustainable protection and development of assets, efficient tax structuring, ensuring family harmony, and preparing the next generation for responsibility.

Theoretically, a single person or an external wealth manager could handle this. But for family wealth above a certain size – and the proceeds from a successfully sold mid-sized company usually fall into this range – it quickly becomes clear that more structure is needed. A Family Office creates this structure without the family losing operational control.

The Four Functions of a Modern Family Office

A well-designed Family Office fulfills four central functions:

• First, strategic asset investment and ongoing portfolio management.

• Second, tax and legal structuring – because the chosen legal form can make a difference of 20–30 percentage points in net returns over time.

• Third, family governance: Who makes decisions, how are they made, and how are different interests balanced?

• Fourth, succession planning – not just related to the original business, but to the wealth as a whole.

The fourth function, in particular, is often underestimated. Many families initially focus on returns and tax optimization – understandably so. However, if the wealth transfer is not structured professionally and early, even the best investment strategy can lose its effectiveness or fall apart in the next generation.

Strategic Asset Allocation

Strategic Asset Allocation (SAA) is the foundation of all successful family wealth strategies. It answers three central questions: How much return do we need? How much risk can we bear? What does our optimal portfolio look like to achieve these goals?

Target Return Setting: Realistic Expectations

Many entrepreneurial families enter the 'Family Office business' with return expectations shaped by their entrepreneurial past. For years, they were accustomed to achieving returns of 15–20% or more with their own company. It is often overlooked that these involved entrepreneurial, highly concentrated risks – often associated with special market positions, niche strategies, or even temporary competitive advantages.

These experiences are then – consciously or unconsciously – transferred to a diversified investment portfolio. This is a fundamental misconception: a broadly diversified portfolio cannot structurally achieve comparable returns without simultaneously taking on significant additional risks.

A more realistic expectation is around 5–8% real return (i.e., after inflation) over the medium to long term. While this may seem less spectacular by comparison, it has a significant impact over time. Especially through the compounding effect, substantial wealth growth occurs over several decades – with significantly reduced concentration and operational risks compared to holding a single company.

Risk Capacity vs. Risk Appetite

Here lies another common misunderstanding. Risk capacity is objective: Can the family economically withstand a 20, 30, or even 40% drop in wealth in a bad year?

Risk appetite, on the other hand, is subjective: Can family members emotionally cope with such fluctuations? It becomes problematic when, during a market crisis, positions are sold at the most unfavorable time due to uncertainty or panic – a pattern frequently observed during the 2008 financial crisis.

A professional SAA therefore considers both dimensions. It uses stress tests, simulates different market scenarios, and defines clear parameters for action: At what fluctuations is an active response triggered? Which triggers initiate reallocations or risk reductions?

Ultimately, the best portfolio strategy only delivers value if it is maintained even in times of crisis. Professional SAA is therefore also a matter of managing expectations correctly – and thus also of psychology.

Taxes and Costs

Those who hold assets in the wrong legal form may pay unnecessary taxes year after year. Those who also rely on overly complex or costly investment vehicles watch as administrative and management fees gradually erode returns. Both often seem unspectacular – but have a significant impact over time.

The choice of the right structure and suitable vehicles can make a difference of 30% or more in net wealth accumulation over a period of 20 to 30 years. These are precisely the 'silent factors' that represent the greatest leverage in the long term.

A well-thought-out strategic asset allocation must therefore always include the structural level: Which legal form is suitable – partnership or corporation? Is a foundation or a family company an option? And how are different asset classes optimally integrated?

These questions cannot be answered generally, but only within the context of the individual wealth, family, and objective structure. This is precisely why they are astonishingly often asked too late – or not at all – in practice.

Risk Management

After SAA comes risk management. It sounds dry, but it's what protects your family from costly mistakes.

Illiquid Positions: The Scoring System

Many entrepreneurial families still hold illiquid positions after the exit: family-owned real estate, fund participations, sometimes even minority stakes in the sold company itself. This is completely normal – but these illiquid positions must be systematically monitored.

A good scoring system for illiquid positions asks: How long does it normally take to sell the position? What would be the typical liquidity discount? What payment flow risks exist? Based on these criteria, you can enter your illiquid positions into a transparent risk matrix and clearly see where concentrations arise.

Debt and Foreign Currency

Another critical risk indicator is the proportion of debt: How much of your wealth is leased, mortgaged, or financed with loans? And in which currencies? Many entrepreneurial families underestimate currency concentration. They generate their wealth in Euros, but 70% of their investments are denominated in US dollars or Swiss francs or other currencies – and may lose value due to currency movements.

Professional risk management sets limits: Maximum 30% foreign currency exposure? Maximum 40% illiquid positions? Limits are individual but are part of any risk management.

Stranded Assets

In almost every portfolio we see, we find 'stranded assets' – positions that neither fit the strategic allocation nor generate an explainable return. A property that has generated hardly any rental income for 15 years. A participation that is barely liquid and pays hardly any dividends. An art collection that is fascinating but generates no return and incurs high insurance costs.

Stranded assets are problematic because they tie up capital without using it productively. Sometimes they have emotional or historical significance – the house where grandpa built his business. But emotions and wealth management don't always mix. A professional Family Office must have the courage to evaluate these positions and say: We need to reduce, restructure, or sell these – because we can generate better returns with this capital.

ESG and Modern Requirements

A new topic, at least for German and European entrepreneurial families: ESG requirements and sustainability goals. Some families want to invest exclusively in "green" investments – others find this nonsense and see special opportunities in the security and defense industry. The question cannot be answered in binary terms, but rather in a differentiated way: Which ESG standards and sustainability goals fit our family wealth and our self-perception? And: Does this cost us returns?

The good news: Professional ESG integration doesn't have to be expensive. On the contrary – many studies show that ESG-focused portfolios perform better or equivalently than purely return-driven ones in the medium term. The key is that ESG integration is structured and does not come at the expense of returns or diversification.

Withdrawal Policy

Some of the most emotional discussions in a Family Office revolve around the withdrawal policy: How much money can the family and future generations withdraw from the wealth? It is a mathematical and psychological question.

Mathematically, the question is: If we withdraw X percent per year, is that sustainable – or am I eroding the principal? Psychologically, the question is: How do the different family members feel if they have different withdrawal rates? What if one child earns less and wants more withdrawals, while the other child is a successful entrepreneur and needs nothing at all?

Liquidity Planning

An often-forgotten but critically important dimension is liquidity planning. You must ensure that you are liquid at the most important times – not because it's convenient, but because you need to be.

Inheritance Tax Provisions

A concrete example: When the intergenerational inheritance case approaches, the family must know how high the inheritance tax due will be. In Germany, for larger assets, this can be seven-figure amounts. These must be paid – ideally not by emergency sale of illiquid assets at liquidity discounts, but from a dedicated liquidity reserve. A professional Family Office works with the tax advisor to quantify this obligation and ensure coverage.

Philanthropic Commitments

Many entrepreneurial families have a philanthropic commitment or a desire for one. Establishing a foundation, donating annually to charitable causes, supporting a specific family forest or cultural project. This is admirable – but it must be planned. How will philanthropy be financed long-term? From ongoing returns or from the asset base? How does this affect our other goals? A Family Office quantifies these goals and ensures that sufficient liquidity is available for them.

Resilience Testing

What happens to your portfolio if markets crash? If inflation rises sharply? If interest rates fall? A professional Family Office conducts resilience tests – scenario analyses that show how robust your portfolio is against various negative scenarios.

Specifically: You calibrate several basic scenarios. Base scenario: Normal economic development, average returns. Crash scenario: A 2008-like market crash. Stagflation scenario: High inflation with low growth (like the 1970s). For each of these scenarios, you make calculated projections: How does my portfolio develop? Do I need to adjust anything? How does this affect my goals?

These scenarios are not predictions. The future is uncertain and will always bring surprises. But the scenarios give you confidence: You know that even under adverse conditions, you are highly likely to achieve your goals. This is reassuring – for the family and facilitates decision-making.

Taxes and Location Issues

A complex but unavoidable topic: Where should you and your assets be tax-domiciled or resident? Wealth tax and inheritance tax can be substantial. And different countries have different systems – some with exit taxes that can be very unpleasant.

A modern Family Office should work with advisors specializing in tax and corporate law to examine the options: Is it economically sensible to decentralize assets to diversify political risk – for example, through a foundation or holding company abroad? Or is it better in your personal situation to simply stay in Germany and intelligently manage the tax burden? There is no universal solution, but these questions must be asked and answered thoroughly. Improvisation in this area is dangerous.

Investment Plans by Asset Class

SAA is only the first step. After that, each asset class must have a detailed plan: What specific investments do we want to make? Why? How will we monitor them? How do we react if they underperform? Far too many families settle on a 60/30/10 split (60 percent stocks, 30 percent bonds, 10 percent alternatives) after SAA – and then invest this money suboptimally, without clear decision criteria.

A good plan for each asset class should include: What products do we use (individual stocks, ETFs, funds, direct participations)? What diversification is required? What is our geographical orientation? What rebalancing trigger rules do we have? And: Who makes the decisions and when?

Succession Planning: Passing on Wealth

The ultimate goal of a Family Office is not simply wealth management – it is the intergenerational preservation of wealth and thus the successful transfer to the next generations. Statistics show that about 70 percent of family wealth fails in the second generation – not because the money was poorly managed, but because the transfer was poorly planned or the next generation was not prepared.

An effective succession strategy includes several elements: First, the legal structure – which legal form do we choose for the transfer? Second, material preparation: The next generation must understand the strategy and be able to handle the wealth not only numerically but also emotionally. Third, governance: How do we make decisions after the transfer? Who has what authority? Fourth, financial requirements: What do we pay for inheritance tax, restructurings, advice?

It is no coincidence that successful dynasties begin intensive succession planning early – not only when health problems arise, but 10-15 years beforehand. This allows time to correct mistakes and prepare the next generation.

Legal Structure Optimization

A point many entrepreneurs underestimate: The legal form in which you hold your assets has enormous implications for taxes, liability risks, and intergenerational transfer. Some options:

• Holding/Family GmbH: You establish a GmbH (or AG) that holds your personal participations. This provides liability protection and can save taxes.

• Foundation: For larger assets, a foundation can be sensible – either a civil law foundation or a foundation abroad (e.g., Liechtenstein foundation). A foundation offers liability protection, flexibility, and can potentially save inheritance tax.

• Family KG: For larger families with multiple generations, a limited partnership (Kommanditgesellschaft) can be interesting – it offers flexibility in profit and asset distribution.

These pros and cons can only be weighed with specialists who understand both tax and law. But the decision can cost you percentage points of return – or save them.

The Operational Side: Governance and Team

A good strategy is only half the battle. The other half is implementation – and that requires a governance structure and a team that understands and can execute the strategy.

For a larger family, this could look like: An advisory board or foundation board that makes strategic decisions. A Chief Investment Officer or Portfolio Manager who makes daily investment decisions. A Chief Financial Officer (CFO) who monitors risk and liquidity. External partners such as a specialized tax advisor, corporate lawyer, a private bank, and a wealth advisor.

Roles, responsibilities, and decision-making processes must be clearly defined. Who can decide what? How are conflicts resolved? What is escalation and how does it work? Poorly defined governance quickly leads to chaos or paralysis, especially when the family is in disagreement.

An important point is also incentivization. If you have internal or external employees, how do you ensure that they pursue your interests – not their own? If your wealth manager is only compensated with 1 percent p.a. in asset management fees, they have little incentive to grow your wealth. Performance-based compensation or hybrid models are more interesting for setting meaningful incentives.

The Timing Error: Financial Planning Before the Company Sale is Completed

Many entrepreneurs only do financial planning after the sale is completed. This is a strategic mistake. Ideally, professional financial planning should begin during the M&A phase.

Why? Because there are different payment mechanisms (immediate payment or staggered via earn-outs), different vehicles (GmbH, natural person), different tax mechanisms depending on how you structure. With good advice, you can sometimes save 5-10 percentage points of return by optimally structuring the transaction and the post-restructuring.

Some M&A processes therefore include not only the company sale but also the structuring of the proceeds for maximum efficiency. This seems trivial, but it requires tax lawyers, M&A advisors, and wealth planners to collaborate early on – not just when it's too late.

Conclusion: Financial Planning is a Living Process

A Family Office and financial planning are not a one-time effort, but a living process. Your goals change. Your life situation changes. Markets change. Good financial planning is a framework that is continuously reviewed and adjusted – annually or semi-annually, depending on complexity.

Many entrepreneurial families we advise report the same thing: It was labor-intensive at the beginning to set up the entire structure and planning. But afterwards? Afterwards, it's liberating. They know that their wealth is managed according to a clear plan. They know that the next generation is being prepared. They can relax – and enjoy the next phase of their lives.

That is the true goal of a Family Office: not the highest return or the lowest taxes (although both are important), but security and clarity in an uncertain environment. And for many entrepreneurial families after a successful exit, this is immeasurably valuable.