Time is running out for 100,000 small and medium sized enterprises in Germany which plan to complete their succession plans by the end of 2019, but either have not found a successor or have not yet started to search for one.
Researchers at German development bank KfW went on to warn a “wave of successions” will crash across the SME sector over the next decade. More than half a million owner-managers of SMEs—14% of the entire sector—intended to transfer ownership and control of their business by the year 2022. The transfer is expected to peak between 2023 and 2027, when almost 11% of all SME business owners and sole traders plan to retire from the workforce.
The German SME sector is powered by 3.6 million privately and family owned businesses known as the German Mittelstand, highly-regarded by the public and a huge economic driver for the country.
The KfW analysis of German SMEs found that giving up their business was an option for one in seven owners and for many it was the only option.
“Managing generational change is becoming increasingly challenging,” the report said.
“There are not enough new business founders moving up who would be qualified to take over. At the same time, the need for successors is high and will grow. This is due, not least, to the fast ageing of owner-managers.”
The analysis found 1.4 million owner-managers were now aged 55 or over. One quarter will have passed the age of 70 by the time they plan to retire and one in 10 will be almost 80.
“Unclear succession is an enormous barrier to investment,” the report said.
“The nearer the time to transfer ownership and control approaches, the less owners are willing to invest. Ongoing negotiations are a further deterrent. Uncertainty is high but once the imminent succession is clarified, investments increase again by 40%.
“Family succession also promotes investment. Hence it is positive that more than half the owners want to see their business in the hands of a family member after they retire.”
The issues of succession is not limited to the German family business heartland. After a 2016 Global Family Office Report finding that 69% of global family offices surveyed expected to undergo a generational wealth transfer within the next 15 years, Campden Research examined the issue of succession in more detail for its 2017 follow-up.
They discovered nearly half of global family offices (47.3%) in 2017 did a succession plan, either written (32.7%) or verbally agreed ($14.6%), but 29.6% said they were currently developing one and 16.1% admitted they did not have a plan for generational transition at all.