This is evident, at least, from the findings of several studies, most of which were commissioned by chambers of commerce and industry.
Here is a summary of the key findings:
Just under 50% of all business owners have not yet addressed their succession planning (Chambers of Industry and Commerce in North Rhine-Westphalia, October 2016)
69% of all entrepreneurs surveyed have not yet made any provisions. (Regensburg Chamber of Industry and Commerce, September 2016)
1,600 companies in Saarland will face succession planning by 2021 (Saarland Offensive, June 2016)
3,000 companies will be looking for a new leader in the next five years (Upper Franconia Chamber of Industry and Commerce, April 2016)
The situation in the East Westphalia Chamber of Commerce district appears to be pleasantly different. According to the study, two-thirds of entrepreneurs over the age of 55 surveyed by the Bielefeld-based Chamber of Commerce and Industry have already given serious thought to their own succession plans. Only one-quarter of all business owners are said to have not yet addressed the issue at all.
Number of Business Successions on the Rise
Across Germany, three general trends can be identified from the wide range of results:
1. Solutions outside the family are on the rise: Only a portion of all family businesses are continued within the family. According to studies, the proportion of companies passed down within the family has fallen by more than 30% to about 34% in just ten years. Only about 17% of all family businesses make it to the third generation.
2. Early preparation for succession pays off: Many entrepreneurs address the issue of their own succession too late—or not at all. Answering the most important strategic question for the long-term survival of the company is often postponed.
And the situation is likely to become even more acute: Most entrepreneurs continue to run their businesses well into retirement age. In just ten years, the proportion of entrepreneurs over the age of 60 in Germany has doubled. And demographic trends suggest that this trend will continue.
In the event of a business sale, waiting too long is likely to result in reduced investment. This has a direct impact on profitability and, consequently, on the value of a business.
At the same time, in the coming years, a growing number of business owners will seek solutions outside the family. The resulting increase in supply is likely to lead to a buyer’s market: prospective buyers will focus on the best-prepared and most profitable companies.
3. Successfully organized generational transitions strengthen the regional economy: The generational transition in small and medium-sized enterprises is one of the greatest future challenges for the economic development of many regions.
Economic development agencies, chambers of commerce, and banks are alarmed and compelled to address this issue intensively. This is because delayed business succession reduces innovative capacity and delays urgently needed investments. The resulting decline in companies’ competitiveness ultimately jeopardizes jobs and our prosperity.
What can business owners do?
It is as simple as it is complex: The key to successful business succession lies in thorough and early preparation for the generational transition. After all, planning a business succession, conducting a structured search for a successor, and ensuring an orderly handover process are not a matter of weeks or months, but of years.
Whether the generational transition is to take place within or outside the family, having a specialist with transaction experience guide this process usually pays off for an entrepreneur. These experts work with the owner to prepare the company for succession, identify typical pitfalls, and facilitate the process in a time-efficient and goal-oriented manner.
Ultimately, however, economic policymakers, bankers, and consultants can only draw attention to this issue. The affected entrepreneur must take the first step themselves. To ensure an orderly transition, it is advisable to begin addressing the issue around the age of 54. Strategically, this would be a good time to do so.
