Generational change in German SMEs is gathering pace

Frankfurt am Main (ots) -

- 236,000 enterprises are looking for a successor by the end of
2019 and another 275,000 by 2022
- A further 331,000 business owners plan to shut down within five
years
- Regional differences in succession planning across the country
- Clarity on succession stimulates investment

The generational change in German SMEs is accelerating fast. Some
40% of SME owners are currently over the age of 55. They will soon
have to think about retirement and business continuity. A special
survey was recently conducted by KfW Research on the basis of the
representative KfW SME Panel. It has revealed that the managers of
236,000 small and medium-sized enterprises are planning to transfer
their business to a successor in the next two years alone. Time is
running out for 100,000 of them because they have either not yet
found a successor or the owner has not even begun to search for one.
These enterprises have considerable importance as some two million
jobs and around 89,000 trainees and apprentices depend on a
successful business transfer.

A look a few years into the future shows the full extent of the
imminent generational change. Another 275,000 senior managers want to
hand over their business by 2022. A handover within the family is the
preferred choice across all sectors and size classes (54%). An
external buyer is conceivable for 42% while an employee or previous
co-owner is considered as a successor much less often (25% and 27%).

But not all executives considering retirement plan to continue
their business at all. Some want to close it down. The owners of
331,000 active SMEs are currently planning to give up their business
within five years. These enterprises employ 1.63 million workers. The
question of whether to hand over or shut down a firm clearly depends
on size. For large enterprises with more than 50 employees, shutting
down hardly appears to be an option and only 5% are considering this.
Micro-enterprises with fewer than five employees are eight times more
likely to close (41%). Company owners in retail, construction and the
services sector have quite similar plans: They want a successor for
slightly more than half of the enterprises in these sectors. In
manufacturing this figure is even higher, at three fourths.

Generational change in SMEs is not an equally pressing problem in
all parts of Germany. There are surprisingly large regional
differences. In Schleswig-Holstein almost half (46%) of all SME
owners are already 55 and older, in Thuringia (44%) and
Baden-Württemberg (41%) the proportions are also above average. These
are the states where the search for successors is most widespread.
The situation is different in Hamburg, Rhineland Palatinate, the
Saarland and Mecklenburg Western Pomerania, for example. There are
significantly fewer older SME executives here, with a share of around
30% each, and much fewer successions are imminent.

As the analysis by KfW Research shows, an imminent generational
transfer of ownership paired with a high age of the company owner
significantly influences the propensity to invest. If the succession
is unclear, investment becomes less likely. Conversely, clarity on
succession strengthens the propensity to invest even if the company
owner has reached a high age. This effect is most pronounced in
companies where succession is imminent within two years. When the
succession is secured it triggers additional capital expenditure of
40% on average.

"As a consequence of demographic change, German SMEs face
substantial structural transformations. The bosses of 842,000
enterprises will be retiring within the next five years - with or
without a successor. This affects one in five SMEs," summarised Dr
Jörg Zeuner, Chief Economist of KfW Group. "Given the extent of this
transformation, adverse impacts on competitiveness cannot be ruled
out - particularly if the executives are too slow or reluctant to
tackle the issue of business continuity. There is a danger that
enterprises stop evolving, that their value declines and, with it,
the chance to hold their ground in the market. Generational change
must therefore be one of the main issues on the executive floors of
SMEs and one of the top items on the economic-policy agenda in this
country", said Zeuner. He continued to say that an orderly succession
usually takes several years of planning - especially when the
successor is not a family member. "We have been observing growing
constraints to external succession as a result of declining numbers
of business founders. This means not just an insufficient number of
young entrepreneurs in Germany but fewer founders willing to take
over an existing firm. The most recent figure was a mere 62,000 in
2016. At the same time, the number of persons who are at least
participating financially and actively in an existing business has
also dropped. Ultimately, these are much too few to meet the need for
qualified successors for existing enterprises", said Zeuner. "A key
challenge is therefore to make entrepreneurship more attractive
again. A major step in this direction would be to deliver more
education in economics and business skills in the school system."

The current analysis by KfW Research entitled "Generational change
in SMEs" is available at: http://ots.de/6IlZu

Details about the database:

KfW Research has monitored the impacts of demographic change on
small and medium-sized enterprises for many years. The current
analysis is based on a special evaluation of the representative KfW
SME Panel 2017, which has been conducted since 2003 as a postal
tracking survey of small and medium-sized enterprises in Germany. In
order to account for the growing importance of generational change in
the SME sector, the collection of relevant data was restructured and
expanded significantly from the year 2017. The basic population of
the KfW SME Panel includes all private-sector companies from all
industries with annual turnovers of up to EUR 500 million. The main
survey was conducted from 13 February to 23 June 2017.

Contact:
KfW, Palmengartenstr. 5 - 9, 60325 Frankfurt
Kommunikation (KOM), Christine Volk,
Phone: +49 69 7431 3867, Fax: +49 69 7431 3266,
E-Mail: Christine.Volk@kfw.de, Internet: www.kfw.de

Original-Content von: KfW, übermittelt durch news aktuell