Older business owners in Germany are investing significantly less in their companies compared to their younger counterparts, according to a special evaluation by KfW’s SME panel. Between 2004 and 2023, the investment gap between the youngest and oldest age groups was an average of 20 percentage points annually. SMEs with owners under 40 invested an average of 58 percent, while those over 60 invested only 38 percent.
This trend has remained consistent over the years but is becoming more problematic due to demographic changes. The average age of SME owners has risen from 45 years in 2003 to over 54 years today. More than half of SME owners are now aged 55 or older, which is nearly two million individuals, up from just 20 percent two decades ago.
"The group of companies that invest more cautiously due to relatively high owner age is gradually growing. The overall impact on investments in SMEs is therefore increasing," says Dr Dirk Schumacher, Chief Economist at KfW.
The ageing issue is notably pronounced in sectors such as construction and knowledge-intensive services like tax consultancy and law. In these industries, the proportion of younger owners has sharply decreased while older ownership has increased significantly.
Older entrepreneurs tend to be less willing to invest due to uncertainties about whether investments will pay off during their tenure and reluctance to take on long-term financial commitments like loans. An unresolved succession plan further discourages investment. However, willingness increases if negotiations with potential successors are underway or if a successor has been found.
"We need to create framework conditions that make it more attractive for young people to take over existing companies. If older entrepreneurs have better prospects of finding successors, they will also invest more," says Dr Dirk Schumacher.
KfW supports SMEs through various promotional programs on behalf of the German Federal Government.