Small and medium-sized business owners are increasingly involving external parties when selling their companies. According to a study by the Kreditanstalt für Wiederaufbau (KfW), about 45 percent of business owners looking to sell prefer buyers who are financial investors, entrepreneurs, or other companies. In contrast, last year, candidates from within the family were still the top choice for business owners. This year, that share also stands at 45 percent.
KfW economists attribute this shift to the fact that the proportion of children in today’s entrepreneurial families is smaller than in families of past decades. In addition, the experts assume that the children of entrepreneurs today have different career aspirations and do not necessarily feel compelled to take over the family business.
Generational transition remains a major challenge in business succession
As a result, however, several challenges arise: It is naturally more difficult for business owners to find a match with external candidates than it would be with an internal solution. However, succession exchanges such as the Deutsche Unternehmerbörse address this problem with their services.
In general, generational transition remains a major issue for small and medium-sized enterprises. According to its study, the development bank reports that by the end of 2020 alone, 227,000 German SME owners were seeking a successor for their business. This means the number of owners who want to hand over their company to a successor within two years remains at a high level.
Addressing the Business Handover Earlier
However, it is encouraging that more business leaders than ever before are addressing the issue of generational succession. At the time of the survey, 59 percent of respondents stated that they were considering the possible options for an age-related retirement from the company. Two years ago, this percentage stood at 55.
It is also encouraging that the number of secured business transfers is rising: Nearly two-thirds of small and medium-sized enterprises aiming for a transfer by 2020 have either finalized their succession plans or are conducting concrete negotiations with a successor. This means that for approximately 141,000 small and medium-sized enterprises, it is already clear who will continue to run the company after the current owner steps down.
The Importance of Small and Medium-Sized Enterprises for Germany
However, as KfW also points out, 36,000 owners have not yet begun the succession process or have merely gathered information. “An orderly handover usually requires several years of planning, especially if the successor is not a family member,” says a KfW expert. Another statistic also gives cause for concern: 9 out of 10 owners seeking to sell their companies are still looking for a buyer.
The fact that Germany also faces a demographic challenge in the SME sector is evident from the fact that currently about four out of ten owners of small and medium-sized enterprises are over 55 years old. For them, the question of retirement—and thus the continued existence of the business—will arise in the foreseeable future.
KfW also highlights the importance of the SME sector for Germany. The 227,000 SMEs scheduled for transfer by 2020 alone employ nearly 2 million workers and 76,000 apprentices. With investments totaling 9.3 billion euros, they account for about 2.4 percent of all corporate investments in Germany, and with annual revenue of 283 billion euros, they account for 6 percent of the total annual revenue of small and medium-sized enterprises.
