620,000 small and medium-sized enterprises to change hands in Germany by 2018

• More and more have to find a successor
• One in six SMEs are affected
• Robust labour market is luring away potential takeover entrepreneurs

One in six small and medium-sized entrepreneurs in Germany are planning to hand over or sell their business to a successor by 2018. That is around 620,000 enterprises with some 4 million employees, according to a study recently conducted by KfW Research on the basis of the representative KfW SME Panel. It shows that the generational transition within the SME sector is gaining pace. Just three years ago, 14% or 530,000 SMEs reported that they were about to change ownership. However, finding a suitable successor is not becoming easier. The number of business founders in Germany is generally on the decline and, with it, the number of entrepreneurs set to take over and continue an existing enterprise.

"It's increasingly clear that succession planners are facing a demographic squeeze", said Dr Jörg Zeuner, Chief Economist of KfW Group. "Year after year, as entrepreneurs grow older more and more of them will retire. But the younger generations are too small so there are not enough successors. In the next 20 years the baby boomers in particular will leave a gap on the executive floors of SMEs." The good labour market situation in Germany is also making people less inclined to start a business. The number of takeover entrepreneurs who continue an existing business has been falling for years. "In 2002 we still had around 200,000 takeover entrepreneurs – in 2015 it was only 62,000", said Zeuner. "In other words, succession-ready entrepreneurs outnumber takeover entrepreneurs by around three to one each year."

Successful business succession is therefore becoming a growing challenge for the SME sector. Capital formation, competitiveness and jobs come under pressure when the transfer is delayed or even fails. This is a pressing issue because many small and medium-sized entrepreneurs begin to think about their succession much too late and underestimate how long it takes to complete. Only 42% of the small and medium-sized business owners planning to transfer their business in the next three years have started the succession process and 22% have concrete plans. What that also means is that that around one third of entrepreneurs have done little or nothing so far and are running out of time.

Nevertheless, half of SMEs regard an early search for a successor and multi-year planning as the main ingredients of successful business succession. However, 72% of entrepreneurs see intensive preparation of their successor as paramount and 60% believe retention of customers and suppliers is most important. Modernising before transferring their company, on the other hand, is rarely regarded as a key success factor (13%). This view can lead to problems because owners should also assess the competitiveness and attractiveness of their business critically in the years before they retire – and invest if necessary.

The most recent studies by KfW Research entitled "Ageing SMEs need to plan for succession - 620,000 businesses to change owners by 2018" and "Succession-ready entrepreneurs outnumber takeover entrepreneurs 3 to 1" are available at www.kfw.de/fokus.