What family businesses in Poland need to know about succession planning

Poland underwent a systemic transformation from a communist regime to a free-market democracy in the end of 1980s as part of the broader wave of democratic change across Central Europe.

Today, Polish family businesses are heavily represented across manufacturing, distribution, fast-moving consumer goods (FMCG), construction and business services.

Many owners and founders of these businesses are now over 60. Having built their companies in the 1990s and early 2000s, they are now contemplating retirement. Despite the long history of these businesses, their future is not always certain: second-generation family members may be considering stepping into the leadership, while others may wish to step away from the business altogether. 

Consequently, family businesses established in the 1990s by Poland’s first generation of entrepreneurs are now facing one of the most important decisions in their history: succession planning.

Since joining the European Union, Poland has attracted growing volumes of foreign capital. Increasingly private equity funds and strategic buyers are actively targeting the mid-market, where family-owned businesses represent a significant share of deal flow.

This has created more options for family businesses in the market than ever before. We outline below the primary options and the main issues that family businesses need to consider for succession planning.

Succession models

The first model is passing the business to the next generation. This is the option that most founders instinctively reach for first because it helps the business stay in the family and has the inherent benefit of preserving the existing owners’ values, culture and legacy. This typically involves the founder of the firm stepping back and allowing one of their children to become the new face and management of the firm.

A second option is a management buyout (MBO). This can be particularly helpful in cases where the next generation of the family is not ready, not interested, or simply not the right fit for the firm. Having a designated management team in place may be the answer. The MBO transfers ownership to the people who already run the business day-to-day.

The third option is for an investor to step in to run the firm. This model either requires a full or partial exit to an external investor – typically a private equity (PE) fund or a strategic buyer, such as a competitor, a larger player in the same sector, or an international group looking to enter the Polish market.

What actions businesses should take

Businesses are advised to start planning now and not to wait for a trigger event to force the issue. Succession planning is often most effective when the process takes place 3-5 years before any intended transition. This gives the business, its employees and its clients plenty of time to adjust to the firm’s new ownership before it is formally executed.

It is important that firms evaluate which of the above models – a family succession, a MBO or an external investor – is most appropriate for their business. They should seek both legal and financial advice on the potential implications of each model before committing to a particular path.

Family businesses are recommended to commission a legal and tax health-check of the business structure. This will help identify issues that could potentially complicate any succession route, including ownership fragmentation, undocumented IP or informal governance arrangements.

It is also critical for firms to open the conversation with the next generation or the management team, with appropriate legal support and documentation. Informal agreements made now can create significant problems later. For example, informal asset or income transfers may be challenged by tax authorities, resulting in unexpected tax liabilities, and undocumented arrangements may surface during due diligence, potentially reducing the business’s valuation or even blocking a transaction.

If firms are considering a private equity or strategic exit, they should begin preparing the business for due diligence well in advance. This means that financial reporting, contracts, employment arrangements and regulatory compliance paperwork all need to be in order. A well-prepared business is likely to be perceived more favourably by potential investors, which in turn can have a positive impact on the company's valuation.

Future outlook

Polish family businesses established between 1990 and 2005 are now reaching the natural point at which their founders must decide what happens next. Many have no formal succession plan in place, underscoring the need to recognise that succession is not only an issue for the future, but a problem they must face and overcome today.

In recent years, a significant proportion of M&A transactions in Poland have involved family businesses or business founders, confirming that founder-led businesses continue to form an integral part of the country’s M&A and broader business landscape.

When faced with succession challenges, we have also seen that founders are becoming increasingly open to external solutions, including where business owners seek liquidity while retaining some element of family involvement.

The question now is no longer whether to act, it is which succession model fits their business and its future operations and outlook.