KfW Research: More and more business owners are considering closing down

• Many are unable to find a successor
• Age is the main reason for business owners to give up
• 39% of entrepreneurs are over the age of 60

More and more business owners in Germany are thinking about closing their operations because they cannot find a successor. Around 231,000 owners of small and medium-sized enterprises who are already planning to give up control of their business have closure plans up to the end of the year 2025. That is 67,500 more than a year ago.

These are the findings of a recent special analysis conducted by the KfW SME Panel between mid-February and mid-June 2024. Never before since KfW Research began to monitor business succession have so many small and medium-sized enterprises considered giving up their operations. Another 310,000 owners who already know that they will relinquish control of their business are considering closing down in the medium term – within the next three to five years.

By contrast, 532,000 of the 3.84 million SMEs in Germany intend to transfer their business to a successor by the end of 2028. This means that the intended successions and the business closures being planned or given consideration by the end of 2028 are roughly balanced.

Age is very often the main reason businesses are planning to close down. The average age of a small or medium-sized business owner is 54 years. Thirty-nine per cent of entrepreneurs are even 60 years or older – that rate is only 30% in the overall German population.

“The demographic ageing of SME owner-managers is advancing even faster than within Germany’s overall population. Wide gaps are opening up on the executive floors of small and medium-sized enterprises”,

said Dr Michael Schwartz, SME expert at KfW Research.

The 215,000 business owners who have short-term succession plans up to the end of 2025 are already 65.4 years old on average. However, many of them have not yet begun to look for a successor or are only in a very early stage. For many of them, time is likely to be running out. We expect that some 43,000 enterprises will most likely no longer be able to fulfil their desire for a short-term succession arrangement.

What is hampering business succession is the shortage of prospective young business founders. And only few of them are interested in building on existing business structures. Each year, there are fewer than half as many business takeovers as there are SMEs with succession plans.

“It is foreseeable that the problem of insufficient business successions in the SME sector will worsen. We need a consistently stronger entrepreneurial drive in Germany. Entrepreneurship or a career pathway in the management of an SME must be an obvious alternative to salaried employment”,

said Dr Michael Schwartz.

“Self-employment must become more visible. This includes, for example, approaches to encouraging an entrepreneurial mindset at school. Career advice services should also adopt a broader perspective.”

The findings of the Status report on SME succession can be retrieved from www.kfw.de/fokus

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