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Tuesday, February 11, 2025

Navigating Business Succession: Why Companies Struggle to Find Successors

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German businesses face a looming succession crisis as many owners struggle to find suitable successors, risking closure. Entrepreneurs like Hartmut and Christian Petzold, who have dedicated years to their vehicle care company, highlight the emotional difficulty of passing on their legacy. With over 250,000 companies potentially at risk within five years, demographic shifts and a lack of interest among younger generations exacerbate the issue. The IHK warns this could lead to decreased competition and innovation in the economy.

The Succession Crisis Threatening German Businesses

In the upcoming years, a significant number of companies in Germany face the risk of closure due to the inability of owners to find suitable successors. This poses a serious challenge to the overall economic landscape of the country. Hartmut Petzold, a 68-year-old entrepreneur from Hagen, shares his concerns as he organizes boxes of cleaning clay alongside car glass cleaners in his warehouse. Together with his 66-year-old brother Christian, the Petzold brothers have been dedicated to developing and selling vehicle care and paint products since 1988. “Having cared for surfaces for so many years and processed thousands of liters of paint, we wish to pass on our expertise,” remarks Christian Petzold. However, approaching retirement age, they find themselves questioning how long they can continue their work as many of their peers have already stepped away from their businesses.

The Challenge of Finding Successors

The brothers, clad in blue shirts, are passionate about their craft, yet they acknowledge that the market has become increasingly challenging. “It feels like losing a part of yourself,” a local mayor reflects on the situation. Over recent years, their revenue has significantly declined, and with long-time clients going bankrupt, the need for a succession plan is becoming urgent. Despite their efforts to find a successor, they have struggled to attract interest. “When you have a deep emotional connection to your business, you want to ensure it continues rather than fade into obscurity,” Christian expresses. They are committed to ensuring their legacy and knowledge are preserved, yet neither family nor external successors have stepped forward to take the reins.

According to DIHK expert Marc Evers, the succession issue is critical for Germany’s middle class. “The demand for succession solutions is three times higher than the supply of interested buyers,” he states. The IHK estimates that over 250,000 companies could be at risk of shutting down in the next five years if suitable successors are not found, either from within the family or externally.

The challenges are compounded by Germany’s demographic shifts, particularly among those aged 18 to 40, who are increasingly less inclined to embrace entrepreneurial roles. “This age group is diminishing while more entrepreneurs are reaching retirement,” Evers notes. Additionally, a considerable number of business owners struggle to emotionally detach from their companies. Nearly 29 percent of businesses seeking advice from the IHK find it difficult to let go, while one in five delay transitioning ownership in hopes of securing a higher sale price later.

Despite these pressing concerns, the Petzold brothers remain focused on their passion for their business. “Our company was built on dedication,” Hartmut emphasizes. “In the early days, we were driven and willing to work long hours. A balanced work-life approach doesn’t always align with entrepreneurial demands.” They believe that successful entrepreneurs must possess a deep-seated conviction that their work is their life’s purpose.

The IHK warns that Germany will face a shortage of such dedicated entrepreneurs in the future. “As knowledge and values diminish, fewer companies will mean less competition and innovation,” the IHK states. This decline could lead to increased prices and challenges in maintaining competitiveness on a global scale. Many medium-sized enterprises are particularly anxious about the impending retirement of the baby boomer generation.

As the month draws to a close, the Petzold brothers await feedback from a potential successor, though their optimism remains low.

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