Germany’s family firms are in rude health


Germany’s economy, by far the biggest in the Eurozone, ground to a halt in the third quarter of 2014, registering only meagre growth. But the country’s mid-tier businesses – referred to as the Mittelstand – aren’t feeling the pressure as much as this slowdown in the overall economy would suggest.

According to a study by KfW, a government-owned development bank, the Mittelstand saw their revenues rise by 1.9% in the past year. The average return on sales has risen 0.7 percentage points to an all-time high of 6.7% in the year up until September.

In another recent study by Commerzbank, another German bank, more than half of the Mittelstand surveyed expressed confidence in the future and were planning to invest as much as €136 billion in growing their businesses over the next few years.

The study also pointed to something which is very familiar to family businesses – that retained earnings continue to be the main source of finance for the Mittelstand. And this is a big reason for the health of the sector, with 66% of companies surveyed relying mainly on their own finances to drive growth. All these firms were reluctant to borrow from banks to grow their businesses. 

The picture wasn’t universally positive. The KfW study did say that growth had fallen substantially for many small and medium-sized firms in Germany since 2012 and international expansion had been curtailed.

Nevertheless, the Mittelstand is most likely to weather the slowdown in Eurozone economic growth rates better than the headline economic figures would suggest. This, yet again, shows how family businesses are more robust to deal with downturns in the economy than many of their non-family owned counterparts.