Business succession: a challenge for medium-sized businesses

In Hesse, over 10,000 owner-managed medium-sized businesses will need a successor in the next five years. That's 20 percent of all comparable companies. Many entrepreneurs face the challenge that this could mean the end of a long family tradition. Top Magazine shows how business succession can still be successful.

A recent survey by the German Chamber of Industry and Commerce (DIHK) shows that 28 percent of senior managers are even forced to close their businesses permanently due to a failed generational transition . This translates to more than a quarter of a million companies facing closure – a significant risk to the German economy and thousands of jobs.

“The general conditions in Germany are deteriorating. We must change course and make it easier to become self-employed again.” – Peter Adrian, DIHK President

The DIHK's 2024 Succession Report is extremely alarming for President Peter Adrian : "The feedback is causing me great concern," he comments. The situation is serious and fraught with uncertainty. "The general conditions in Germany as a business location are deteriorating," warns the economist from Trier. "Compared to the pre-coronavirus period, the desire to take over a business has declined by 36 percent," Adrian says. The know-how of German SMEs is under threat. "We must change course and make it easier to become self-employed again," he demands.

Small and medium-sized enterprises (SMEs) make up approximately 99 percent of the business landscape in Germany, employ 55 percent of all workers, and generate 42 percent of gross value added. Thus, SMEs are the much-cited "backbone" of the German economy. Yet this pillar of our society is increasingly giving cause for concern.

48 percent cannot find a suitable successor

A succession solution within the family is now only considered by one-third of senior entrepreneurs. A few years ago, the number was over 40 percent. Around half could imagine a takeover from the workforce, a so-called management buyout, as an alternative. However, around 50 percent of all entrepreneurs now see the sale or closure of their company as the only way to secure the wealth often built up over generations.

Letting go of your life's work

According to their own statements, 48 ​​percent of entrepreneurs are unable to find a suitable successor. However, the truth is that 41 percent failed to search for a suitable successor in a timely manner, and nearly 30 percent simply cannot emotionally let go of their life's work. A company sale often fails because 40 percent of owners overestimate the value of their company and demand too high a purchase price. Of those interested in a successor, more than a third cannot provide financing for the purchase price.

Business succession: Children reject their parents' footsteps

Sustained social changes and structural economic challenges are making traditional business succession more difficult. Demographic change is also affecting businesses. More and more owners are reaching retirement age, but fewer and fewer young people are available as potential successors.

Changing attitudes toward life and work, as well as the desire for individual self-realization, also affect entrepreneurial families. Most children of entrepreneurs refuse to follow in their parents' footsteps. In addition, it is now very easy to live as an employee without the entrepreneurial burden of responsibility and risk. The current economic conditions deter young people from taking on the burden of running a business. Uncertain national and global political and economic conditions often overwhelm them. For the same reasons, it is becoming increasingly difficult for those seeking to acquire a business to convince banks to finance the venture of acquiring a company.

Reflection, time, transparency, communication

How can you still successfully manage the handover of your own business? The most important factors are reflection, time, transparency, and communication. The German Chambers of Industry and Commerce advise senior business owners to address a planned handover early and communicate transparently.

Reflection means facing the finiteness of one's own existence and preparing early on for letting go of one's life's work. Sufficient time is needed to assess one's own children or employees for suitability and motivation and to train them in the complex task over several years. Transparent communication and constant, equal exchange with family and closest colleagues gives potential successors sufficient time to prepare professionally and personally for the task.

Plan handover in good time

The family business Rudolf Achenbach GmbH & Co. KG in Sulzbach im Taunus is an example of how carefully planned company succession can succeed. The transition to the family's two daughters was planned long-term and completed in 2024. The delicatessen manufacturer, founded in 1954, remains in the family and is now being run by the third generation.

"The company, built by our grandfather after World War II, was expanded by our parents," says daughter Katrin Achenbach. It's a typical German success story of hard work and skill.

Katrin took over the operational management from her mother, Petra. "After the coronavirus hit, we were able to increase the number of employees from 60 to 100," reports the hotel management graduate with satisfaction. Her sister, Sandra, holds a degree in business administration and is responsible for controlling, IT, and administration.

"We started working in the company very early on," they both say. "We earned our driver's license in production." Katrin's husband, Hans-Peter, a trained chef, has been managing the company since 2018. The talents of the three managing directors complement each other well. Nevertheless, the succession was not a foregone conclusion. Her mother, in particular, had been closely monitoring whether the trio could meet the requirements.

A nerve-wracking process

The product portfolio is diverse and ranges from finger foods and appetizer components to soups and sauces, desserts, and energy balls. Deliveries are made throughout Germany and also to other European countries.

How the succession should be structured was a matter of intense discussion within the family for a long time. After careful consideration and consultation with business, legal, and tax advisors, the acquisition of the company through a purchase was preferred to a gift. The tax office then reviewed all submitted documents over several years and ultimately approved the proposed transfer of the company. Sandra: "Nevertheless, a process like this, with an initially uncertain outcome, is quite stressful." The sisters couldn't just decide on the purchase price for the acquisition. They spread the agreed purchase price over several years to ensure they could manage the financing.

"Being an entrepreneur isn't a 9-to-5 job. You have to really put in the effort. Many people shy away from that." – Katrin Achenbach, Achenbach Delikatessen-Manufaktur

Being an entrepreneur is not a 9-to-5 job, says Katrin, mother of three young children. "You really have to put in the effort. Many people shy away from that." Her sister Sandra also points out the responsibility for employees and the difficulty of recruiting skilled workers. Butchers, bakers, confectioners, cooks, and production assistants work in production at Rudolf Achenbach GmbH & Co. KG. "Because recruiting skilled workers will remain difficult in the future, we have very successfully explored new avenues via social media," says Production Manager Hans-Peter Achenbach. Promoting young talent is important to the company. The Rudolf Achenbach Prize for young chefs, established in 1975, is highly respected in the industry. Celebrity chef Tim Mälzer even won it once at the beginning of his career.

The Achenbachs are continuing their path undeterred. The long-established company hasn't let the coronavirus derail it. But the initial shock was significant. "At the beginning of the pandemic, sales plummeted. But after it ended, our business recovered, partly because we can respond very flexibly and at short notice to individual requests," explains Katrin Achenbach. "2024 was a very good year. The beginning of 2025 is still subdued. That's just how it is in our industry. You have to be able to deal with it."

Hessian Succession Prize for successful generational change

Last fall, Katrin Achenbach and Sandra Moos-Achenbach received the inaugural Hessian Succession Award for their successful transition to the next generation despite all adversities. A second company from the Rhine-Main region also received this distinction: the auditing and tax consulting firm Heim Honermeier in Frankfurt-Sachsenhausen. Over the years, the firm successfully developed five junior partners, who have since taken over the firm as partners. The award is intended to encourage and motivate potential successors to take the next step. After all, following in their parents' footsteps is no longer a given these days. But it is still the most common option.

"The demographic development among small and medium-sized business owners is progressing even faster than in the overall German population. Massive gaps are emerging in the management ranks of small and medium-sized enterprises." – Dr. Michael Schwartz, KfW

One in four companies wants to give up

In its current succession monitoring, the development bank KfW confirms the worsening situation for small and medium-sized enterprises. "The demographic trend among SME owners is progressing even faster than in the German population as a whole. Massive gaps are emerging in the management ranks of medium-sized companies," says Dr. Michael Schwartz, SME expert at KfW Research. "The senior generation in the management ranks of SMEs is staying with the company for increasingly longer periods of time," is the core of the study. Too few are ready for a replacement. The unclear succession sometimes leads to the postponement of necessary investments. This reduces competitiveness and thus also the attractiveness to potential buyers.

51 percent want a family succession

According to the current KfW study, of the 215,000 entrepreneurs seeking a takeover by the end of the year, 43,000 have virtually no prospect of finding a buyer. Decisions regarding the continuation of the business are becoming increasingly rare. 920,000 entrepreneurs are already considering giving up. 51 percent of those considering retiring want to hand their business over to a family member. Succession through employees of their own company is being considered by 30 percent of existing owners. Only 11 percent can imagine succession through co-owners of the company. 41 percent are looking for an external buyer.

For investors, such an entry has the advantage of being able to rely on a proven business model, "including a customer base, suppliers, order backlog, employees, and expertise," as KfW notes. Companies seeking a successor are generally financially robust and have sufficient equity. For many, selling a company to investors is difficult to imagine as a succession plan.

Good to know: During the generational transition, local chambers of commerce and industry offer family offices specializing in succession and wealth preservation, offering advice and support. A conversation with your bank can also help you set the course in good time.

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