This little story is big for German family businesses

Don’t let a story about the file for bankruptcy of a small business called Steinback deceive you - its significance is potentially huge for the Germany’s family business sector.

Steinbach makes traditional wooden nutcrackers and it has been doing so as a family business for more than 200 years. Karla Steinbach took over from her father in 2007 and is the sixth generation of her family to run the business.

Based in Hohenhameln in northern Germany, Steinbach filed for bankruptcy because it couldn’t afford to pay its employees the newly introduced minimum wage of €8.50 an hour, compared with its current €5.50 to €6.50 hourly wage.

Of course, businesses no matter what their size should always try to pay their employees a good wage, and if governments set a minimum one they should do their best to pay that. But when they can’t afford to pay prescribed wages then Steinbach’s dire situation is a real possibility.

The trouble for Germany is that many family businesses are feeling squeezed by having to pay more for their staff at a time of greater uncertainty in the country’s overall business environment.

Last week, Family Capital ran an article about how the VW scandal would adversely affect Germany’s family businesses, because many of them have links to the car maker.

But even more significant is how the scandal might have an indirect consequence on the sector through the likely introduction of an inheritance tax for family businesses in Germany based on the number of people they employ. Simply put, under the new regime if family businesses can’t employ more people over a given period of time they face having to pay a hefty inheritance tax.

A slowdown in economic activity in Germany, which seems an inevitable consequence of VW’s difficulties, could see many family business owners having to pay inheritance tax as they face a slowdown in their growth rates. Add the new minimum wage into the mix and the consequences become even more serious.

Sometimes the little stories are what count because they are a potent to what is likely to happen on a much bigger scale in the future - Steinbach’s tale of woe might just be that.