Challenges in Business Succession in SMEs—A Comparison of Poland and Germany

The following figures on the respective numbers of SMEs in Poland and Germany are based on surveys conducted by the IFM Bonn, as well as by the Central Statistical Office (GUS) in Poland and the Federal Statistical Office in Germany.

Number of SMEs in Poland in 2022

In 2022, there were a total of 2,158,393 companies in Poland. Of these, 2,155,183 were small and medium-sized enterprises (SMEs), accounting for 99.9% of all companies. The distribution of SMEs by employee size class is as follows:

• 0 to 9 employees: 2,057,394 companies (95.3%)

• 10 to 49 employees: 83,625 companies (3.9%)

• 50 to 249 employees: 14,164 companies (0.7%)

Only 3,210 companies (0.1%) had 250 or more employees. These figures illustrate that the vast majority of Polish companies are small and medium-sized enterprises, with the majority employing fewer than 10 people.

Number of SMEs by Size Class in Germany in 2022

In 2022, a total of approximately 3.1 million companies in Germany were classified as small and medium-sized enterprises (SMEs), accounting for 99.3% of all companies. The distribution of SMEs by size class is as follows:

• Micro-enterprises (up to 9 employees): 2,542,000 companies (82.0%)

• Small enterprises (10 to 49 employees): 458,800 enterprises (14.8%)

• Medium-sized enterprises (50 to 249 employees): 77,500 enterprises (2.5%)

These figures illustrate that the majority of SMEs in Germany consist of micro-enterprises.

In 2022, there were approximately 3.1 million SMEs in Germany, accounting for 99.3% of all businesses. The “baby boomer” generation is gradually retiring. By 2036, they will have completely left the workforce. At the same time, the statistical number of potential successors who are willing and ready to take over a business is lower than the number of businesses for which business succession must be resolved. Early action and timely preparations are essential here. The IfM Bonn estimates that approximately 190,000 businesses in Germany will be up for transfer between 2022 and 2026.

Business Succession in Poland

Compared to Western European countries, business succession in Poland is still a relatively new issue, as the majority of Polish family businesses were established only in the 1980s and 1990s in the wake of the political transition. Now, the first generation of family business owners in Poland faces the challenge of finding a successor for their business. According to estimates, business succession will be an issue for approximately 70% of all Polish family businesses in the coming years. In 80% of cases, the goal is to find a successor within the family. Studies indicate that only one in three Polish SMEs believes the family business can be successfully passed on. As a result, one-quarter of all business owners surveyed are considering selling their company.

Challenges in Business Succession for SMEs in Poland and Germany

Succession in small and medium-sized enterprises (SMEs) in Germany presents a number of challenges. Here are some of the most important ones:

1. Lack of successors: Often, there is no suitable successor in family-owned businesses. This may be due to a lack of interest among the younger generation, who may be pursuing other career paths. Shortage of skilled workers: Finding qualified professionals who can take over the business can be challenging, especially in certain industries.

2. Financing: Securing the necessary funding during the succession process can be difficult. Successors often need capital to take over the business, which can be hard to obtain from banks or investors.

3. Planning and time management: Careful succession planning is essential, but many business owners start planning too late, which can lead to an uncertain future for the business.

4. Corporate Culture: A change in leadership can affect the corporate culture. It is important to ensure continuity in values and working practices.

5. Legal and Tax Considerations: Complex legal and tax regulations can complicate the succession process. Expert advice is often necessary to avoid legal pitfalls.

6. Emotional Factors: In family-owned businesses, emotional ties can influence decision-making. Conflicts among family members can further complicate succession.

7. Familiarity with the Company: The successor must quickly familiarize themselves with the company’s processes and structures. This can be time-consuming and is often associated with high levels of stress.

8. Market Changes: Constantly changing market conditions and technological developments require adjustments that can pose an additional challenge during the succession process.

To address these challenges, early and comprehensive succession planning is crucial. Entrepreneurs should consult with experts and consider both internal and external succession solutions.

Business Succession in SMEs: A Comparison of Poland and Germany

Business succession in small and medium-sized enterprises (SMEs) differs in Poland and Germany in several respects, taking into account both cultural and economic factors.

1. Legal Framework

• Germany and Poland:

• Poland and Germany have well-established legal frameworks for business succession. There are specific laws governing inheritance tax and business valuation that can facilitate the transfer.

2. Cultural Aspects

• Germany: In Germany, generational transitions are often well-planned, and many entrepreneurs begin succession planning early on. Family succession is common, but selling to external buyers is also widespread.

• Poland: In Poland, there is often a stronger family tradition in business management, which is why many entrepreneurs are less well-prepared for the succession process. Although entrepreneurs anticipate a generational transition in business leadership, changes in ownership related to the involvement of external investors are to be expected.

3. Financial Aspects

• Germany: Financing for succession is relatively well secured through various subsidy programs and support from banks. Many companies have access to a solid financing framework.

• Poland: In Poland, access to financing for successors can be more difficult, especially when it comes to the valuation and financing of SMEs. As a result, it is common to bring in foreign capital.

4. Market Conditions

• Germany: The market for business succession in Germany is relatively stable. Many SMEs have high value, and there is strong demand for well-managed companies.

• Poland: The market in Poland is growing, though there are still significant differences in market structure across many industries. Demand for business transfers is also increasing, and family-owned businesses are increasingly well-prepared for generational succession or investor participation.

5. Support Services

• Germany: In Germany, there are numerous institutions that support entrepreneurs with succession planning, including chambers of commerce, associations, and consulting firms.

• Poland: In Poland, the infrastructure to support succession is still under development. Institutions are being established to address succession needs. The range of consulting services in this area is also expanding rapidly.

Chart: Preferences for Business Transfers/Succession and Their Percentage Share

Preferred Succession Solutions

Source: https://www.ifm-bonn.org/statistiken/unternehmensuebertragungen-und-nachfolgen/nachfolgen

Conclusion

Overall, it is evident that business succession in Germany is more structured, while Poland is on a path toward developing similar structures. Entrepreneurs in both countries should take into account the specific challenges and opportunities of their markets to find successful succession solutions.

Succession Options in Both Countries

In both Germany and Poland, there are many options for business succession in SMEs. In this regard, Poland is learning from its western neighbor. One example of such arrangements is family foundations, which—from a tax perspective alone—represent a more favorable solution in Poland than in Germany. Both countries also have thoroughly regulated inheritance and gift tax laws, often in conjunction with a family fund mechanism. However, the German market is more developed in this regard due to the size of its economy. Business sales and acquisitions, management buyouts (MBOs, MBIs), spin-offs, mergers, and joint ventures are commonplace. In Poland, both the number and value of similar transactions are on the rise.

As statistical data on the two SME markets and demographic forecasts show, significant changes in ownership in this sector are inevitable. An upward trend in cross-border buyer-seller transactions involving companies is expected in the near future. The need to transfer businesses through other forms of succession will also increase. Both European economies—the strong German economy and the steadily growing Polish economy—have already found solutions for smooth succession in various forms. The choice of the appropriate form of succession depends on many factors, such as the industry, the willingness of family members to get involved, their readiness to lead the company, market forecasts, the financing structure, and so on.