Profitability Threshold and Economic Pressures Challenge Business Succession in Germany's SMEs

Germany is currently facing a significant challenge in business succession within its small and medium-sized enterprises (SMEs). According to the Institute for SME Research (IfM), at least 68,000 euros in annual profit is necessary for a business succession to be viable. Yet, out of 3.6 million companies, only 733,000 meet this profitability threshold, indicating a stagnation in businesses ready for ownership transition despite an expected 186,000 companies needing to change hands over the next five years due to aging owners, illness, or death.

The IfM highlights that service-oriented companies earning under 500,000 euros annually are most affected, struggling to attract successors. The pressure is compounded by generational and cultural differences, especially involving younger successors who often feel constrained by outdated practices and face conflicts over digitalization and sustainability approaches within family businesses.

Additional economic factors exacerbate these challenges. The DATEV Mittelstandsindex from September 2025 shows a "toxic mix" of declining revenues, rising wages, and stagnant employment levels for KMUs, underscoring ongoing financial and operational strain in Germany's SME sector.

Weak market conditions and bureaucratic obstacles discourage younger family members from taking ownership, leading some current owners to opt for sales to financial investors or strategic buyers instead. Furthermore, financial constraints prevent even experienced managers from acquiring companies, increasing the risk that some businesses will fail to find successors and ultimately exit the market.

The IfM predicts that the highest number of ownership changes will occur in service industries and manufacturing sectors, with agriculture and forestry witnessing fewer transitions. This forecast reflects the varied impact across different sectors but emphasizes the critical nature of addressing succession hurdles amid economic challenges.

As Germany approaches a wave of SME ownership changes, the combination of insufficient profitability, economic pressures, and generational shifts is shaping an uncertain future for many businesses, raising concerns about the continuity and stability of this vital sector of the German economy.