Financial planning for family offices: The new reality after the sale of a company

How entrepreneurial families strategically structure and increase their assets in the long term

From entrepreneurial family to investor family:

The turning point after the exit

The sale of the family business is complete. The transaction is finalized, the profits have been realized – and suddenly the family faces a completely new reality: Instead of running an operating company, they now have to professionally manage and develop a substantial fortune. This is a fundamental paradigm shift that many entrepreneurial families underestimate.

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

What is a family office really – and why do you need one?

A family office is essentially a structured management system for a family's assets. It pursues several goals simultaneously: the sustainable protection and growth of assets, efficient tax structuring, safeguarding family harmony, and preparing the next generation for responsibility.

Theoretically, a single individual or an external wealth manager could handle this. However, with family fortunes exceeding a certain size – and the proceeds from a successfully sold medium-sized company typically fall into this category – it quickly becomes clear that more structure is needed. A family office provides this structure without the family relinquishing operational control.

The four functions of a modern family office

A well-designed family office fulfills four key functions:

• Firstly, strategic asset management and ongoing portfolio management.

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

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

• Fourthly, succession planning – not only in relation to the original company, but to the assets as such.

The fourth function in particular is often underestimated. Many families initially focus on returns and tax optimization – understandably. However, if the transfer of assets is not structured early and professionally, 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 key questions: How much return do we need? How much risk can we tolerate? What does our optimal portfolio look like to achieve these goals?

Return target: 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 companies. What is often overlooked is that these returns involved highly concentrated entrepreneurial risks – often linked to 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 precisely where a fundamental misconception lies: a broadly diversified portfolio cannot structurally achieve comparable returns without simultaneously taking on significant additional risks.

A more realistic expectation is a real return of around 5–8% (i.e., after inflation) over a medium to long-term horizon. While this may seem less spectacular in comparison, it has a significant impact over time. The power of compound interest, in particular, generates substantial wealth growth over several decades – while simultaneously significantly reducing concentration and operational risks compared to holding a single company.

Risk capacity vs. risk appetite

Herein lies another common misconception. Risk capacity is objective: Can the family financially withstand a drop in assets of 20, 30, or even 40% in a bad year?

Risk tolerance, on the other hand, is subjective: Can family members cope emotionally with such fluctuations? Problems arise when, in a market crisis, positions are sold at the worst possible time due to uncertainty or panic – a pattern frequently observed, for example, during the 2008 financial crisis.

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

Ultimately, the best portfolio strategy only realizes its value if it is maintained even in times of crisis. Professional SAA (Strategic Asset Allocation) is therefore always 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 end up paying unnecessary taxes year after year. Those who simultaneously rely on overly complex or expensive investment vehicles watch as administrative and management fees gradually erode their returns. Both often seem unremarkable, but over time they have a significant impact.

Choosing the right structure and suitable investment vehicles can make a difference of 30% or more in net wealth accumulation over a period of 20 to 30 years. It is precisely these "silent factors" that represent the greatest leverage in the long run.

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

These questions cannot be answered in general terms, but only within the context of individual assets, family structure, and goals. Precisely for this reason, they are surprisingly often asked too late – or not at all – in practice.

Risk management

After the SAA comes risk management. That 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 an exit: family-owned real estate, investments in funds, sometimes even minority stakes in the sold company itself. This is perfectly normal – but these illiquid positions must be systematically monitored.

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

Debt capital and foreign currency

Another critical risk indicator is the debt-to-equity ratio: How much of your assets are 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, Swiss francs, or other currencies – and may lose value due to currency fluctuations.

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

Stranded Assets

In almost every portfolio we examine, we find 'stranded assets' – positions that neither fit the strategic allocation nor generate an explainable return. A property that has yielded barely any rental income for 15 years. A stake 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 asset 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 topic that has recently emerged, at least for German and European entrepreneurial families, is ESG requirements and sustainability goals. Some families want to invest exclusively in "green" investments – others consider this nonsense and see particular opportunities in the security and defense industry. The question cannot be answered in a binary way, but rather requires a nuanced approach: Which ESG standards and sustainability goals align with our family's wealth and our self-image? And: Will 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 to pure return-priority portfolios in the medium term. The key is that ESG integration is structured and doesn't come at the expense of returns or diversification.

Withdrawal policy

Some of the most emotionally charged discussions in family offices revolve around withdrawal policy: How much money can the family and future generations withdraw from the assets? It's a mathematical and psychological question.

Mathematically, the question is: If we withdraw X percent per year, is that sustainable – or am I eroding the capital base? Psychologically, the question is: How do the different family members feel when they have different withdrawal rates? What if one child earns less and wants to withdraw more, while the other child is successfully running an entrepreneur and doesn't need anything at all?

Liquidity planning

An often overlooked but critically important dimension is liquidity planning. You must ensure that you have sufficient funds at the most crucial times – not because it's convenient, but because you need them.

Inheritance tax provisions

A concrete example: When an inheritance is due across generations, the family needs to know how much inheritance tax will be payable. In Germany, this can amount to seven-figure sums for larger estates. These taxes must be paid – ideally not through the forced sale of illiquid assets at a discount, but from a dedicated cash reserve. A professional family office works with a tax advisor to quantify this obligation and ensure sufficient funds are available.

Philanthropic commitments

Many entrepreneurial families have a philanthropic commitment or a desire to develop one. Establishing a foundation, making annual donations to charitable causes, supporting a specific family forest or cultural project – all of this is admirable, but it requires planning. How will philanthropy be financed in the long term? From current returns or from existing assets? How will this impact our other goals? A family office quantifies these goals and ensures that sufficient liquidity is available to support them.

Resilience Testing

What happens to your portfolio if the 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 adverse scenarios.

Specifically: You calibrate several baseline scenarios. Baseline scenario: Normal economic development, average returns. Crash scenario: A market crash similar to 2008. Stagflation scenario: High inflation with low growth (like the 1970s). For each of these scenarios, you create detailed projections: How will my portfolio perform? Do I need to make any adjustments? How will this affect my goals?

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

Taxes and location issues

A complex but unavoidable issue: Where should you and your assets be domiciled or resident for tax purposes? Wealth and inheritance taxes 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: Does it make economic sense to decentralize assets to diversify political risk—for example, through a foundation or holding company abroad? Or, given your personal circumstances, is it better to simply remain in Germany and manage your tax burden intelligently? There is no one-size-fits-all solution, but these questions must be asked and answered thoroughly. Improvisation is dangerous in this area.

Investment plans by asset class

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

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

Succession planning: Passing on assets

The ultimate goal of a family office is not simply wealth management – it is the preservation of wealth across generations and thus its successful transfer to the next generations. Statistics show that around 70 percent of family fortunes fail 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, the practical preparation: The next generation must understand the strategy and be able to handle the assets not only financially, but also emotionally. Third, governance: How do we make decisions after the transfer? Who has which powers? Fourth, the financial requirements: What will we pay for inheritance tax, restructuring, and consulting?

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

Legal structure optimization

One point many entrepreneurs underestimate: The legal structure in which you hold your assets has a huge impact on taxes, liability risks, and succession planning. Some options:

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

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

• Family limited partnership: For larger families with several generations, a limited partnership can be interesting – it offers flexibility in the distribution of profits and assets.

This weighing of pros and cons can only be answered by specialists who understand both taxes and law. But the decision could cost you percentage points in return – or save you.

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 the strategy and can implement it.

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 day-to-day investment decisions. A finance director/CFO who oversees risk and liquidity. External partners such as a specialized tax advisor, corporate lawyer, private bank, and wealth manager.

Roles, responsibilities, and decision-making processes must be clearly defined. Who is authorized to decide what? How are conflicts resolved? What constitutes escalation and how does it proceed? Poorly defined governance quickly leads to chaos or paralysis, especially when families are arguing.

A family office is an administrative business – the best strategy becomes the worst strategy if the team does not understand or cannot implement it.

Another important point is incentives. If you have internal or external employees, how do you ensure they represent your interests – and not their own? If your asset manager is only paid a 1 percent annual asset management fee, they have little incentive to grow your wealth. Performance-based compensation or hybrid models are much more effective for creating meaningful incentives.

The timing mistake: Financial planning before the company sale is completed

Many business owners only start financial planning after the sale is complete. 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 legal vehicles (limited liability company, natural person), and different tax mechanisms depending on how you structure the transaction. With good advice, you can sometimes save 5-10 percentage points in returns by optimizing the transaction and subsequent restructuring.

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

Conclusion: Financial planning is a living process.

A family office and financial planning are not a one-off effort, but a living process. Your goals change. Your life situation changes. The markets change. Good financial planning is a framework that is continuously reviewed and adjusted – annually or semi-annually, depending on the complexity.

Many entrepreneurial families we work with report the same thing: It was labor-intensive at the beginning to establish the entire structure and plan. But after that? After that, it's liberating. They know their assets are managed according to a clear plan. They know the next generation is being prepared. They can relax – and enjoy the next phase of their lives.

That's 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, that's incalculably valuable.