Succession planning: external managing director instead of sale or closure

Between 2026 and 2030, around 186,000 family businesses in Germany are due to be handed over because their owners are leaving management for reasons of age or health. That is the estimate of the Institute for SME Research (IfM) Bonn. Over the same period, according to KfW, around 114,000 SMEs per year want to close their business once the owner steps down. For the first time, slightly more owners have closure plans than concrete succession plans.

In short: Succession does not have to mean that a buyer turns up or that a son or daughter takes over. If the family wants to remain the owner but nobody can take on operational management, an external managing director is a third option. This person runs the company without holding any shares. For it to work, you need a clear mandate, a joint handover phase and around three years of lead time.

Where does SME succession stand in 2026?

Three sources shape the debate, and they count different things. The IfM Bonn only looks at family businesses whose profits make a takeover economically viable. Of 3.2 million family businesses in total, 733,000 meet this condition, and 186,000 of them face a handover in the next five years. The KfW Succession Monitoring for SMEs from January 2026, by contrast, covers all 3.87 million small and medium-sized enterprises, including sole traders. There, around 545,000 owners want a successor by the end of 2029. Finally, the DIHK Business Succession Report 2025 analyses the advisory meetings held by the German Chambers of Industry and Commerce (IHK): in 2024, there were almost 10,000 meetings with owners looking to hand over, more than ever before.

For an industrial mid-sized company with its own management level, the IfM figure is the more realistic reference. The findings shared by all three sources are nonetheless clear:

69 percent of SMEs see finding a suitable successor as the biggest hurdle (KfW).
92 percent of IHK-advised companies considering closure cannot find a suitable successor (DIHK).
For 47 percent of companies with closure plans, a lack of interest within the family is a decisive factor (KfW).
38 percent of outgoing owners prepare the handover too late, often only one to two years in advance (DIHK).
Owners who want to settle their succession by the end of 2026 are already 66.5 years old on average (KfW).

Why does succession fail because of people more often than money?

In public, succession is usually discussed as a financial issue: purchase price, bank loans, inheritance tax. The figures put the emphasis elsewhere. Only 18 percent of SMEs see financing by the successor as a hurdle, while almost four times as many fail on the question of who should take over at all.

In industry, this problem becomes more acute. The DIHK points out that running an industrial company often requires in-depth technical knowledge, from machinery and standards to quality assurance, which significantly narrows the circle of suitable candidates. In addition, structures in many companies are strongly tailored to the previous owner.

From our perspective, there is a flawed assumption behind this. Many owners are looking for one person who brings capital, knows the industry, has leadership experience and is willing to carry the entrepreneurial risk. Such people exist, but they are rare. The IfM calculates that a takeover only pays off for a rational successor if the profit yields more than permanent employment plus a return on capital. An experienced plant manager or commercial director earns well as an employee and has little reason to put their own assets into someone else's company. KfW confirms the trend: in 2024, only 17 percent of founders took over an existing business, a share that has more than halved since 2002.

Anyone who thinks of ownership and management separately will find considerably more candidates. For the management role, people come into question who would never buy the company.

What is an external managing director, and when is it the right succession solution?

An external managing director runs a GmbH (German limited liability company) without holding a stake in it. The shareholders appoint them, and they manage the business on the basis of an employment contract. Ownership stays with the family, which retains influence through the shareholders' meeting and often through an advisory board.

There are no separate statistics on how widespread this model is. The IfM meta-analysis only shows to whom family businesses transfer ownership: 54 percent within the family, 17 percent to employees and 29 percent to external parties. In studies since 2010, the family share is 51 percent, compared with 55 percent before that. Family succession therefore remains the most common solution, but it is losing ground.

An external managing director is particularly worth considering when:

the family wants to remain the owner, but nobody in the next generation wants or is able to manage the business,
a son or daughter is meant to take over later but is still too young or is currently gaining experience at another company,
a sale is planned, but not for several years, and the company should become less dependent on the founder in the meantime,
several shareholders want a say, but none of them wants to work in day-to-day operations.

The model is less suitable if the senior owner does not want to let go and continues to make every decision personally. An experienced managing director recognises this quickly in conversation and declines, or joins and leaves again after a year and a half. Profitability also has to be right: external management costs a market-rate salary. If the company cannot carry this cost, a sale is usually the more honest solution.

How does the search for an external managing director work?

The search itself is rarely the hardest part. What is harder is that the family and the senior owner first have to clarify what the new managing director will actually be allowed to do. The following sequence has proven effective:

Define the role and powers in writing. Which decisions will the managing director take alone in future, and which require the shareholders' approval? Will there be an advisory board, and what role will the previous owner play?
Plan the timeline backwards. The DIHK recommends starting concrete planning and the search at least three years before the intended handover. Bear in mind that good candidates are in permanent employment, and notice periods for executives are typically three to six months.
Approach candidates directly instead of advertising. For managing a family business, candidates often come from the second management level of comparable companies and are looking for their next step. They don't read job advertisements. How discreet direct candidate approach works is described in a separate article.
Assess suitability beyond the CV. Besides industry knowledge, what matters is how someone deals with shareholders who are handing over their life's work. Structured interviews and management diagnostics make leadership behaviour visible before the decision is made.
Plan the handover as a phase of its own. The senior owner and the successor should work in parallel for a period, with fixed dates on which responsibility passes over. What matters in an executive's first 90 days is covered in our article on onboarding.

An example from consulting practice

Anonymised and for illustration: a family-run machine builder with around 180 employees, whose owner is 67. His two children work in other industries and do not want to run the company. The first plan is a sale. However, the serious bidders are two competitors who are mainly after the customer list and would move production to their own sites. The family decides differently: it remains the owner and looks for an external managing director. The position is filled by the former plant manager of a supplier, who already knows the customers from his time on the supplier side. After a joint phase, the senior owner moves to the newly created advisory board.

"Many owners look for a buyer first. When we take a closer look, what they usually lack is someone who will take responsibility for 150 people the next morning. Capital is rarely the problem," says a consultant at SCHLAGHECK + RADTKE (quoted for illustration; name withheld for reasons of discretion).

In technical industries, the candidate market is small and the suitable people know each other. Our page on executive search in mechanical and plant engineering shows which positions we fill in this environment.

Which mistakes should you avoid in succession planning?

These five oversights cost time or good candidates in succession processes particularly often:

Starting too late. Anyone who starts the search a year before retiring has no time for a handover phase and negotiates under pressure.
Freezing investment until the succession is settled. According to KfW, annual investment volume falls by around 32 percent in companies with short-term succession plans. An investment backlog makes the company less attractive to any successor, buyer and managing director alike.
Giving the external managing director the title but not the decisions. If they still need sign-off for every order above 10,000 euros, they will soon realise they are really the senior owner's assistant.
Searching only within your own network. The tax adviser, the bank's relationship manager and the golf partner rarely know anyone who has already held exactly this role.
Involving the workforce too late. The IHKs also advise communicating early and openly, so that rumours don't drive away key people before the successor arrives.

Frequently asked questions about succession planning

What does succession planning mean?

Succession planning determines who will run a company once the owner leaves, and who will own it in future. Both can lie with one person, for example in a sale to a buyer who also manages the business. But they can also be separated: the family keeps ownership, and an external managing director takes over management.

How long does succession planning take?

The DIHK recommends planning concretely and starting the search at least three years before the intended handover. The search for an external managing director alone often takes several months including the candidate's notice period, followed by the joint handover phase.

Who appoints an external managing director?

In a GmbH, the shareholders appoint the managing director, usually by resolution of the shareholders' meeting (Section 46 No. 5 of the German Limited Liability Companies Act, GmbHG). Separately, an employment contract is concluded that governs pay, term and powers. Have this contract reviewed by a lawyer.

Can an external managing director acquire shares later?

Yes, this is possible and is sometimes agreed from the outset, for example as a gradual stake after several years. A purely management-based solution can then later become a management buy-in. Clarify the terms in advance with your tax adviser and lawyer.

Your next step

If succession is due in your company in the coming years, and the family wants to remain the owner but no longer wants to manage the business itself, an early conversation is worthwhile. SCHLAGHECK + RADTKE fills management and leadership positions in technical mid-sized companies through executive search, from clarifying the role and a discreet search to support during the first months. Contact us in Düsseldorf, Munich or Ulm.