Crisis of Succession in Small and Medium Enterprises: Imminent Policy Adjustments
Schwarzach - The impending retirement of the baby boomer generation in Germany is causing a significant generational shift in the country’s economy, with hundreds of thousands of small-to-medium-sized businesses (SMBs) struggling to find suitable successors. As a result, traditional companies are either being sold at below market value or closed, leading to the loss of valuable knowledge and economic stability in entire regions.
The predicament arises due to a combination of factors. Many owners find it challenging to attract potential successors due to bureaucratic red tape, excessive tax burdens, and poor incentives, according to a report by the KfW. Nearly 40 percent of all company owners are already over the age of 60, with a significant number expected to retire in the coming years, particularly in traditional industries like crafts, industrial production, and commercial services.
One of the main obstacles is society’s perception of entrepreneurship in Germany. Stigmas associated with self-employment, coupled with a fear of failure, serve as deterrents for potential successors. Furthermore, young people often prioritize security and predictability over entrepreneurial responsibilities, which leads to missed opportunities for many businesses.
Structural factors also contribute to the problem. Germany has one of the highest corporate tax rates in Europe, with many countries setting rates between 20 and 23 percent, compared to around 30 percent in Germany. This high tax burden, coupled with factors such as high energy prices, rising social security contributions, and inflexible labor law regulations, make it less appealing for young successors or experienced management personnel to lead businesses.
Linear bureaucracy and outdated digital infrastructure further hamper SMBs. The digital infrastructure of public authorities often falls short, making processes unnecessarily complicated and limiting businesses’ scope for action. Moreover, additional legal regulations like the Supply Chain Act require substantial resources that smaller and medium-sized enterprises usually lack.
To safeguard the future of the middle class, a comprehensive approach is needed. This includes digitizing administrative processes, reducing bureaucratic hurdles, and focusing on financing business successions. The government has taken steps towards this end by proposing reforms to ease fiscal pressures on SMBs, facilitate cross-border and domestic trade, and reduce regulatory burdens. Additionally, incentives, such as a special depreciation allowance for equipment investments, have been put in place to encourage modernization and expansion among SMBs.
In conclusion, preserving the economic backbone of the German middle class requires a multifaceted approach that addresses not only economic and fiscal policies but also cultural attitudes towards entrepreneurship and education. By creating incentives and easing the paths for generational transitions, Germany can ensure the long-term viability of countless businesses that contribute to the stability of entire regions and uphold cultural values.
About Fabian Zamzau and Michael Polit
Fabian Zamzau and Michael Polit are the managing directors of Otter Consult GmbH. They specialize in helping entrepreneurs find qualified successors for their businesses and facilitating the profitable sale of these companies to interested parties. The team at Otter Consult GmbH provides guidance and assistance throughout the entire process, from exploration to completion. For more information, visit: https://otterconsult.de/.
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Otter Consult GmbH
Represented by: Fabian Zamzau & Michael Polit
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Website: https://otterconsult.de/
- The financial industry and business community in Germany are facing a significant challenge due to the impending retirement of baby boomers, who own a majority of small-to-medium-sized businesses (SMBs).
- The high tax burden, bureaucratic red tape, and stigmas associated with self-employment are among the factors deterring potential successors, resulting in traditional industries like crafts, industrial production, and commercial services losing valuable knowledge and economic stability.
