Small and medium-sized enterprises in Germany well-prepared for crisis
Many small and medium-sized enterprises (SMEs) in Germany are also now feeling the heavy strain of the financial and economic crisis. But thanks to strong economic growth in previous years, SMEs have been able to successfully consolidate their finances, as can be seen in the new disaggregated corporate balance sheet statistics recently published by the Bundesbank. With such a solid basis to work from, these enterprises are in a much better position to overcome the effects of this recession than they were during earlier downturns. *
Significant improvement in profitability of SMEs given moderate business growth
Between 2005 and 2007, small and medium-sized enterprises (less than €50 million turnover) were able to significantly improve their profitability given the generally favourable economic environment. On an annual average, the 10% rise in the annual result before taxes on income was a considerable increase, even when compared to the 22% rise recorded by large enterprises. Even when the sales growth is also taken into consideration, this positive trend remains strong. 2007 saw gross returns on turnover reach 6%, up from 5% in 2004 and by far the largest figure since the start of the series in 1997.
With a moderate expansion of business activities - gross revenue grew by 3.5% p.a. - the boost in profitability was achieved primarily through cost discipline, especially in the area of staff costs, which rose by an average of only 1.5% over the three years.
Considerable strengthening of the equity base
SMEs balance sheet totals grew an average of 4 ¼% between 2005 and 2007. This was due to a sharp increase in capital resources of 12% p.a., as well as a rather moderate rise in liabilities (+3 ¼%) and provisions (+3 ½%). The share of capital resources in the balance sheet total therefore grew considerably from 14 ¾% to 18 ½%. In the case of non-corporations among the SMEs, it rose by 4 percentage points to 12 ½%, and in the case of incorporated enterprises it rose by 2 ½% to 25 ½% for incorporated enterprises. This reduced the disparity to large incorporated enterprises by 4 percentage points. As a result of the improved capital adequacy of SMEs, bank borrowing fell a further 3 ½ percentage points to 26% of the balance sheet total. Overall, German SMEs have successfully used the buoyant economic years in this decade to strengthen their financial resilience. In light of the current financial and economic crisis, in which profits have been hit severely, this buffer has proven to be very helpful and has likely enabled many enterprises to ensure their continued existence.
* In future, the projected corporate balance sheet statistics commented on here will also be published with a differentiation between SMEs and large enterprises as ongoing updated time series. For data up to 2007, see http://www.bundesbank.de/statistik/statistik_wirtschaftsdaten_tabellen.en.php. For the first time, sectoral data for 2007 are also available.