When should you start succession planning in your family business?

Start succession planning in your family business at least five years before you want to step down. That period follows from the tax rules: if you want to give your business away under the Dutch business succession scheme, you must have owned it for at least five years. Research also shows that a successor from the family performs worse on average than an outsider, especially if the successor has not been well prepared.

In this article

1. How early should you start with succession?
2. Why do so many owners put off succession?
3. Does a business perform worse when a child takes over?
4. Is selling to an outsider better than passing the business on in the family?
5. What makes a transition within the family successful?
6. What happens if you are suddenly unable to work?
7. Which tax time limits apply when you pass your business to your child?

How early should you start with succession?

Start at least five years before you want to step down, and preferably earlier. In that time you choose a successor, prepare them and arrange the tax side. If you only start when you want to stop, there is no time left to build anything.

The five years is not a guess. If you want to give your business to your child under the business succession scheme (BOR, an exemption from Dutch gift and inheritance tax for anyone who continues a business), you must have owned the business yourself for at least five years. If you are more than six years over the state pension age at the time of the gift, that period becomes half a year longer for each extra year (Belastingdienst, 2026).

Research points the same way. In a study of 209 second and third generation family businesses, the transition went more smoothly when the successor was better prepared and when the family had done tax and wealth planning in advance (Morris et al., 1997). Preparation takes years: education, experience and the conversation within the family cannot be arranged in a few months.

Why do so many owners put off succession?

Because almost everyone around the business has a reason to. The owner has to face getting older and losing his role. The family and the staff fear unrest. So together they keep the subject quiet.

The American researcher Ivan Lansberg called this the succession conspiracy in 1988. He described how the founder, the spouse, the children and long-serving managers each have mixed feelings about succession, and so together avoid planning it. He named the lack of a succession plan as one of the most important reasons why family businesses do not survive their founder (Lansberg, 1988).

The practical consequence is that you have to put the subject on the agenda yourself. Nobody else will do it. A fixed date for the first conversation already helps, because delay then becomes visible.

Does a business perform worse when a child takes over?

On average, yes. Studies in Denmark, the United States and Italy find that companies become less profitable when a family member takes over the management instead of an outsider. That is an average, not a verdict on your child.

The strongest evidence comes from Denmark. Researchers followed 5,334 CEO successions at limited liability companies between 1994 and 2002. In 33.3% of cases a family member took over (Bennedsen et al., 2006). Around the change, with a family successor the return on assets (operating profit divided by total assets) fell by at least 4 percentage points (Bennedsen et al., 2007).

This is more than a correlation. The researchers used the gender of the departing CEO's first child. If that was a son, a family member took charge more often, while a child's gender does not affect profit by itself. This allowed them to show that the family succession caused the decline. The loss was largest in fast-growing sectors, in sectors with many highly skilled staff and at larger companies (Bennedsen et al., 2007).

Other countries show the same pattern. Among American listed companies, firms with a CEO from the family performed worse on profitability and market value, especially if that CEO had not attended a selective university (Pérez-González, 2006). In Italy, keeping management in the family after the founder led to lower performance, mainly at firms that had been doing well beforehand (Cucculelli & Micucci, 2008).

What does this mean for you? The lesson is not that your child cannot do it. The lesson is that a successor from the family is not automatically the best choice. If you start early, the successor can prove that they can handle the job, and you still have time for a plan B.

Is selling to an outsider better than passing the business on in the family?

That depends on what matters to you. A Swedish study found that businesses sold to an external buyer performed better afterwards, while businesses that stayed in the family survived more often. Return and continuity therefore do not always point the same way.

The researchers looked at all private family businesses in Sweden that changed owner over a ten-year period. They explain the difference by the long-term view families take of their business, and by the willingness of external buyers to take risk (Wennberg et al., 2011).

For your choice, this means you first need to know what you want to achieve. Is it about the highest return, or about a business that is still in the family in twenty years? That question is best asked well before a buyer or a successor is ready.

What makes a transition within the family successful?

Three things: a well-prepared successor, good relationships in the family and timely tax and wealth planning. Of these three, relationships have the largest effect. That is the finding of a study of 209 second and third generation family businesses.

Transitions went more smoothly when the successor was better prepared, when relationships in the family were open and trusting and when thought had been given to tax and the transfer of wealth. The researchers advised owners to pay more attention to relationships and less to the tax side alone (Morris et al., 1997).

A smooth transition is not the same as a successful business afterwards. In the same study, a smooth transition did not automatically lead to better performance in the following years (Morris et al., 1997). Peace in the family is therefore necessary, but the business still has to be well managed afterwards.

What happens if you are suddenly unable to work?

Then profit falls, and more so in family businesses than elsewhere. Research on Danish companies shows that a business becomes less profitable when its CEO ends up in hospital. A succession plan is therefore also an emergency plan.

The researchers used hospital admissions of CEOs as an unexpected event. They found that the CEO has a large effect on profitability and investment. That effect was stronger in family businesses, at growing companies and in sectors that depend on people's knowledge. An admission of another manager had no comparable effect (Bennedsen, Pérez-González & Wolfenzon, 2020).

For an owner-director, this means you must also arrange who takes over if you suddenly drop out. That does not have to be a final successor yet. But it must be clear who decides, who signs and where the agreements are kept.

Which tax time limits apply when you pass your business to your child?

For a gift under the business succession scheme in 2026, you must have been the owner for at least 5 years, your child must be at least 21 years old and the business must be continued for at least 3 years. For an inheritance, the ownership period is 1 year and there is no minimum age (Belastingdienst).

The exemption is substantial. In 2026, the value of the business up to €1,543,500 is 100% exempt, and above that 75%. On the taxed part you can get a deferral of payment, with up to 10 years to pay (Belastingdienst, 2026).

If your child continues the business for less than 3 years, the exemption lapses and gift or inheritance tax must still be paid. If it concerns shares in a private limited company, your child must also remain the owner of the shares for 3 years (Belastingdienst, 2026). That is another reason to let the successor first prove that they really want to and can run the business.

The rules of the business succession scheme have been changed often in recent years. So always check the conditions of the year in which you actually make the gift.

Sources

• Bennedsen, M., Nielsen, K.M., Pérez-González, F. & Wolfenzon, D. (2007). Inside the family firm: The role of families in succession decisions and performance. The Quarterly Journal of Economics, 122(2), 647-691. doi.org
• Bennedsen, M., Nielsen, K.M., Pérez-González, F. & Wolfenzon, D. (2006). Inside the family firm: The role of families in succession decisions and performance. NBER Working Paper 12356 (working paper version, source of the sample figures). nber.org
• Pérez-González, F. (2006). Inherited control and firm performance. American Economic Review, 96(5), 1559-1588. doi.org
• Cucculelli, M. & Micucci, G. (2008). Family succession and firm performance: Evidence from Italian family firms. Journal of Corporate Finance, 14(1), 17-31. doi.org
• Wennberg, K., Wiklund, J., Hellerstedt, K. & Nordqvist, M. (2011). Implications of intra-family and external ownership transfer of family firms: Short-term and long-term performance differences. Strategic Entrepreneurship Journal, 5(4), 352-372. doi.org
• Morris, M.H., Williams, R.O., Allen, J.A. & Avila, R.A. (1997). Correlates of success in family business transitions. Journal of Business Venturing, 12(5), 385-401. doi.org
• Lansberg, I. (1988). The succession conspiracy. Family Business Review, 1(2), 119-143. doi.org
• Bennedsen, M., Pérez-González, F. & Wolfenzon, D. (2020). Do CEOs matter? Evidence from hospitalization events. The Journal of Finance, 75(4), 1877-1911. doi.org
• Belastingdienst, Inheritance and gift tax and the business succession scheme 2026 (brochure, in Dutch). belastingdienst.nl
• Belastingdienst, Inheriting or receiving a business as a gift: the business succession scheme (in Dutch), accessed 14 October 2026. belastingdienst.nl