Introduction
The challenge of finding successors is increasingly threatening the future of Germany's small and medium-sized enterprises (SMEs), which comprise approximately 99% of all firms in the country. As many business owners contemplate retirement, they are faced with an urgent need for succession planning to avoid shuttering their operations.Context
Rudolf Kiessling, a 62-year-old owner of a heating, ventilation, and air conditioning business, epitomizes this widespread challenge. With over half of Mittelstand owners now aged over 55, the demographic shift is becoming critical. A recent survey by KfW, the state-run development bank, revealed that about 231,000 SME owners plan to cease operations by the end of this year, marking an increase of 67,500 from the previous year.Developments
The age of SME owners is quickly surpassing national averages, with 39% aged 60 or older. This has led to an unprecedented number of businesses considering closure rather than succession. Michael Schwartz, a KfW expert, noted that the issue poses a significant risk to Germany's economy, which is experiencing its longest downturn since World War Two.Several factors contribute to the reluctance of potential successors. Many business owners report that their children are pursuing different career paths, while employees interested in succession express concerns about the responsibilities involved. Additionally, the skilled labor shortage compounds these difficulties, restricting the pool of internal candidates available to take over family-run businesses.
While the new government has plans for an infrastructure fund and potential tax cuts, uncertainty regarding business leadership hinders investment. ING's Carsten Brzeski highlighted a significant gap in investment, estimating an under-investment of between 400 and 600 million euros over the past decade due to inadequate succession planning.
Recommendations to alleviate the succession crisis, such as tax incentives and improved financing, were proposed prior to the February elections. However, the government appears to lack concrete plans on this front. As Benno Packi from the BVMW stated, the current coalition agreement does not address the critical issue of business succession.
The emotional aspects of business succession also complicate matters. Many entrepreneurs view their businesses as extensions of themselves, making it challenging to let go. Holger Wassermann, an expert in company transitions, noted that psychological factors play a significant role in these decisions.
In contrast to the trend, Marcel Krieb, at only 25, has already taken the reins at pretium associates, a financial consultancy for SMEs. His willingness to embrace the uncertainties of self-employment highlights a generational divide in attitudes toward business ownership. A survey by the Ifo Institute found that 42% of family-owned Mittelstand firms do not have a family member prepared to continue their legacy.