As part of the current KfW SME Panel, the state promotional bank KfW has found out that business succession is increasingly becoming a burning issue in the SME sector. Whereas three years ago there were “only” 530,000 small and medium-sized enterprises wanting to deal with business succession, over 620,000 companies in Germany are already looking for a suitable successor in the next three years. The proportion of German family entrepreneurs looking for a solution for their company has thus risen to 17%. Three years ago, this figure was still at 14 %.
Alarming figures for the national economy, economic policy and small and medium-sized enterprises.
Once again, it becomes clear that business succession in the SME sector is something that concerns every German family business owner. One cannot start early enough with the development of ideas for a future company succession. According to the survey, however, not even half (42%) of the companies concerned that are due to be handed over in the next three years are currently dealing with the succession process. We know two things from our everyday consulting work:
- Professional preparationA well-prepared company succession answers as many questions as possible in advance for the buyer and his bank. A good exposé and a company valuation in line with the market are very helpful instruments in the search for a successor in times of a shortage of skilled workers and entrepreneurs. A positive side effect is that the transferring entrepreneur prepares himself optimally for the upcoming negotiations.
- Successful Company successions in small and medium-sized enterprises take time: We reckon with an average of 2 to 4 years. Sometimes it is quicker. Sometimes, however, a business succession can take considerably more than five years. A business handover can also fail at the last moment.
Complexity and time expenditure of the succession process often underestimated
It is therefore advisable in any case to call in professional support for this topic, which is so existential for the company. Besides the daily business, a professional and promising search for a successor is actually impossible to realise.
More than half of SMEs plan family-internal succession
It is true that more than 50 % of the entrepreneurs concerned still say they want to solve their business succession within the family. But here, too, there are clear stumbling blocks that need to be avoided. Often it is communication problems or qualification problems of the next generation that lead to a family-internal generation change not functioning smoothly. Here, too, a fair, competently managed handover process can be initiated with the help of a trained business mediator.
Although the number of potential company successors has been decreasing for years, more than half of the companies surveyed have only one handover option in mind. Against the backdrop of demographic developments, an acute problem is emerging here: it is becoming increasingly difficult to find a suitable candidate to take over the company.
Number of (takeover) founders declines steadily
There are also clear changes in the start-up scene. While the number of start-ups (taking over an existing company as opposed to founding a new one) was still 200,000 in 2002, it was only one third of that in 2015 with 62,000.
Digital change and lack of willingness to invest jeopardise succession
Digital change is also accelerating the pressure on entrepreneurs seeking succession in the next few years. The question of whether an investment is still worthwhile today or whether it should be left to a potential successor is considered important by only 13% of the entrepreneurs surveyed. This assessment can be very deceptive, because a company that is not geared to the future is fundamentally much more difficult to pass on to the successor generation.
Today, product innovations only have an average lifespan of about 5 years, whereas a few years ago it was up to 15 years. If only to be able to meet the demands of the new markets, one cannot start early enough to look for and build up a potential successor for one’s company.
Success factors of a successful business succession
The complexity of the handover process is also reflected in the success factors mentioned by entrepreneurs themselves for successful business succession in SMEs:
Company succession in the SME sector - a sobering conclusion
Almost every 5th German SME (17%) is planning to hand over their business by 2018, affecting over 620,000 SMEs. On the other hand, there are fewer and fewer founders and potential successors. Only 42% of those companies aiming for a succession solution by 2018 have even considered it so far. Thus, unresolved business successions in SMEs endanger not only individual companies, but also the economic development of entire regions and our prosperity.
Tips for further reading:
Preparing for business succession - 3 practical tips
Advice traps in the process of business succession
Selling a business: Why a pure success fee makes it difficult to provide serious advice
Comment: Unresolved company successions endanger our prosperity
