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Metal processing company (symbolic image): Last resort business closure

Photo: Monika Skolimowska / dpa

More and more medium-sized companies in Germany want to hand their company over to other hands. The proportion of entrepreneurs who are generally seeking a succession plan has increased from 35 to 41 percent in the past six years, as a survey by the state development bank KfW shows. However, the difficulties in finding suitable candidates are likely to increase. “The “succession gap” in medium-sized businesses is growing,” said KfW chief economist Fritzi Köhler-Geib.

“Demographic change is causing the number of older owners who are thinking about succession to increase,” said Köhler-Geib. One in three of them is already at least 60 years old. The problem: The following generations are numerically smaller due to low birth rates. In addition, according to the KfW, interest in starting up companies has generally fallen, as has the number of potential founders.

Business succession within the family is particularly popular

According to the survey, around 224,000 owners of medium-sized companies are planning to withdraw by the end of the current year alone. This corresponds to six percent of the 3.81 million small and medium-sized companies with an annual turnover of a maximum of 500 million euros.

In the most recent survey for the KfW SME Panel in the first half of 2023, the vast majority (74 percent) cited finding suitable successors as a problem - including companies that do not yet have any concrete plans in this direction in the foreseeable future. Fewer respondents see agreeing on the purchase price and bureaucracy (30 percent each) as hurdles, followed by legal complexity (28 percent) and financing issues (16 percent). Multiple entries were possible.

Some owners also decide to close the business. According to the survey, 97,000 medium-sized companies (around three percent) have such plans by the end of 2024. The lack of interest from family members in taking over plays a role in around two thirds (63 percent) of all foreseeable closures.

Business successions within the family are very popular with the majority of old owners (57 percent). Less popular are selling the company to external parties (43 percent), succession by company employees (28 percent) or a co-owner (21 percent). Multiple entries were possible.

The study is based on the annual KfW SME panel. More than 11,300 small and medium-sized companies took part in the GfK survey on behalf of KfW in the first half of 2023.