Succession crisis: German small-firm owners have no one to take over

A quiet crisis threatens Europe's largest economy. It's the challenge hundreds of thousands of small and medium-sized businesses are facing in their search for successors, as their owners age towards retirement.

"In the past, it was relatively simple," says Werner Braun, a well-known butcher north of Munich, "because the son always took over the father's profession. It is different for us."

He's the fourth generation of his family to run the Braun butchery and restaurant, following the purchase of the property by his great-grandparents back in 1910. Now, he's just one of the many business owners facing the various factors affecting the succession of companies into new hands. 

"Energy costs, regulatory requirements, and a backlog of investments are leading to succession problems," he tells CGTN.

With the costs for acquiring and operating a business much in Germany higher than previous generations, the number of people willing to take over a company has been decreasing.

It's a factor emphasized by the country's aging population, a lack of skilled workers and the evolution of the internet, making traditional bricks-and-mortar businesses less desirable to the younger generations. 

According to the German Chamber of Industry and Commerce for Munich and Upper Bavaria, it used to be that there were three potential successors for each company, but now there are three companies for each successor.

"The traditional company is being shut down," says Bernhard Eichinger, a Chamber of Industry and Commerce member who works directly with businesses about their succession plans.

"The younger generation is going into a different industry. AI, quantum technology, it's all becoming more prevalent due to education."

The business heart of Germany

This is particularly apparent in family-run businesses. According to a survey by the Munich based economic research institute, IFO, about 42 percent of family-owned businesses do not have a successor lined up within the family.

But this problem extends across hundreds of thousands of small- and medium-sized businesses – or Mittelstand, as they are known in German. 

Considering the Mittelstand makes up around 99 percent of all firms in the country, provides roughly 60 percent of all jobs and contributes roughly 52 percent to the country's GDP, potential closures due to the lack of successors could have a very serious impact on Germany's economy.

The state-run development bank, KfW, found that over 230,000 of them are planning to close their doors by the end of this year because they can not find the right people to take it over; a figure roughly 67,500 higher than the number recorded a year ago.

Back at his butcher shop and restaurant, Werner Braun says succession is a regular discussion among members of the Bavarian Butchers' Guild.

"Last year, we lost 127 businesses throughout Bavaria, leaving us with only 1300 businesses, and the number of those closing down isn't decreasing."

With no children of his own and unable to find an outside successor, Braun took the drastic decision to adopt his nephew in order to pass on the firm to a fifth generation.

"For me, it was about passing on my name and of course, the tax aspect also played a role. So I thought this makes perfect sense."

Adoption allowed Braun to pass on the family name while avoiding heavy inheritance tax. But this is not a solution for every retiring business owner, says Eichinger.

"Bureaucracy could be reduced. And, of course, financing the purchase price of companies could be made easier with loans that regional or state-owned banks could potentially provide."

Yet for the hundreds of thousands of SMEs looking to pass on the torch in the coming years, a solution is needed now to continue driving the country's economic model forward.