Status report on SME succession: Business transfer plans are picking up pace

• 224,000 SMEs plan to transfer their business to a new owner in 2023 and 2024 alone; by the end of 2027, this will rise to 626,000 overall

• Today, 30% of business owners are over the age of 60, and the number of potential successors has been declining for years

• Difficulties in finding successors are likely to increase

The current Status report on SME succession 2023 published by KfW Research shows that the withdrawal plans of SME owners in Germany are picking up pace. In the short term alone, around 224,000 bosses of small and medium-sized enterprises plan to stand down and place their business into the hands of a successor by the end of the year 2024 (based on the spring 2023 survey date). That amounts to six per cent of all 3.81 million small and medium-sized enterprises in Germany. What is pleasing is that more businesses seeking successors than ever before are already well advanced in the succession process, as 41% (92,000) of them already have their succession arrangements in place. A further 31% (69,000) are already in negotiations. In addition to short-term succession plans, medium- or longer-term succession plans have also increased moderately. If we look at the five-year period from 2023 to the end of 2027, around 626,000 of the 3.81 million small and medium-sized enterprises in Germany are planning a business transfer. That means around 125,000 business successions would be completed on average each year up to and including 2027 – if indeed all business owners were to actively pursue and implement these plans.

Even if they work hard, a number of hurdles can cause their succession processes to get stuck or fail altogether. The ones which businesses mentioned most often are: finding a suitable successor (74%), agreeing on a purchase price (30%), bureaucracy (30%), legal complexity (28%) and financing aspects (16%).

The current figures of the Status report on SME succession illustrate that more and more business owners are actively dealing with the topic of succession. The share of owners aspiring in principle to hand over their business increased from 35% to 41% in the past six years. For a structural aspect, that is a relatively significant change in a relatively short time. The foreseeable demographic development suggests that finding suitable successor candidates will become increasingly more challenging. The following generations are simply less numerous as a result of persistently low birth rates. Entrepreneurial appetite in general and the number of potential business founders have been on a downward trend for many years.

“The succession gap in the SME sector is widening”,

said Dr Fritzi Köhler-Geib, Chief Economist of KfW.

“We are now talking about some 125,000 businesses for which the current generation of owners is seeking a successor – every year. Demographic change is increasing the number of older business owners who are entertaining thoughts about a transfer. Already, one in three is at least 60 years old, that is well over a million. But at the same time, there are not enough potential successors, which is increasing the barriers and challenges for the generation of seniors. It is therefore pleasing to see that the level of planning of current owners is now better than ever before. The number of successions already sorted has reached an all-time high”,

said Köhler-Geib.

Not every owner is looking for a successor. Some 3% of them, or 97,000 of all SME owners, have serious plans of closing down by the end of the year 2024 – a period for which estimates can be deemed reliable – either as the only conceivable avenue or at least as a serious option. This is roughly half the rate of the previous year.

Among the motives for closing down instead of handing the business over, lack of potential successors within the family is by far the main reason, at 63%, a share that is 13 percentage points higher than in the previous Status report on SME succession. At the same time, the current generation of owners still has a profound desire to hand over the business to a family member. Keeping it within the family remains the preferred succession variant, with 57% of existing owner-managers wanting to leave their business in the hands of a family member. Selling it to an external buyer is given less preference, at 43%, as is handing it over to employees (28%) or to a co-owner (21%).

KfW’s current Status report on SME succession is available at:­ Focus on Economics

The dataset:

The evaluations of the Status report on SME succession are based on the KfW SME Panel 2023 as the main data source. The KfW SME Panel (KfW-Mittelstandspanel) has been conducted since 2003 as a tracking survey of small and medium-sized enterprises in Germany.

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. With a database of up to 15,000 companies a year, the KfW SME Panel is the only representative survey of the German SME sector, making it the most important source of data on issues relevant to SMEs. As it is representative of all SMEs of all sizes and across all industries in Germany, the KfW SME Panel offers the possibility to conduct projections for micro-businesses with fewer than five employees as well. The KfW SME Panel is also available to researchers in the context of research partnerships.

The survey is conducted by GfK GmbH on behalf of KfW Group. The project received expert advice from the Centre for European Economic Research (ZEW) in Mannheim. The main survey of the 21st wave was conducted in the period from 6 February to 16 June 2023. A total of 11,328 SMEs took part in the 21st wave.