14 December Investment

Starting a Business or Acquiring One in Germany?

Mehmet Akif Özmen | Sworn Financial Advisor - CPA | Founder, CEO

Germany, known as the economic engine of Europe, is an attractive destination for investors thanks to its strong industrial infrastructure, stable legal framework, and high profitability potential. The stock of foreign direct investment (FDI) in Germany rose to €1,240 billion in 2022. The largest sectors for FDI in 2022 included manufacturing, finance and insurance, as well as wholesale and retail trade.

If you’re considering starting a business in Germany, you have two main options: establish a new business from scratch or acquire an existing company. In this article, we will evaluate both options in terms of costs, capital, market entry speed, risks, and opportunities. By providing a comparative summary, we aim to help you decide which business model suits you best.

Starting a Business in Germany: Building Your Dreams from Scratch

Each year, more than 300,000 new businesses are established in Germany. Small and medium-sized enterprises (SMEs), known as “Mittelstand,” make up 99.6% of businesses in the country and generate more than half of the economic output. Starting a company from scratch in Germany offers the chance to shape your vision entirely according to your goals. However, this journey comes with both advantages and challenges.

Advantages:

  • Bringing Your Vision to Life: Everything is under your control. Your business model, products, or services are entirely shaped by your strategy.

  • Brand Identity: Building a brand from scratch ensures long-term independence and a unique position in the market.

  • Cost Control: From the outset, you can plan your expenses and create a capital structure tailored to your needs.

  • Tax Advantages: When starting a company in Germany, you can benefit from government incentives and support programs in specific sectors. Additionally, reduced VAT rates for small businesses can help lower costs during the initial years.

Disadvantages:

  • High Risk: Most new businesses face challenges in the first five years and may fail for various reasons. Establishing a foothold in the market can take time.

  • Longer Market Entry: Adapting to the market and building a customer base often takes longer compared to acquiring an existing business.

  • Legal and Bureaucratic Processes: Establishing a business in Germany requires “Gewerbeanmeldung” (business registration), tax office registration, and applications to local chambers of commerce, all of which can take time. Foreign investors may also need to navigate additional procedures like visas and residence permits.

Reading Advice

Explore our comprehensive guide for all the details on starting a business and opening a branch in Germany!

Acquiring a Business in Germany: A Quick Start

The transaction value in Germany’s Mergers & Acquisitions (M&A) market is projected to reach USD 58.26 billion in 2024. This market is expected to grow at an annual rate of 13.97%, reaching a total of USD 66.40 billion by 2025.

Acquiring an existing business in Germany is an attractive option for investors looking for a faster market entry. This business model offers a ready-made infrastructure and customer base, thereby reducing certain risks to a degree.

Advantages:

  • Fast Market Entry: With the existing customer portfolio and brand recognition of the acquired company, you can start generating revenue from day one.

  • Lower Risk: The financial performance and market position of the acquired company are already known, allowing you to manage risks more effectively.

  • Ready Infrastructure: Compared to starting a business from scratch, you benefit from operational infrastructure, equipment, supply chains, and experienced employees that are already in place.

  • Labor Law Advantages: When you acquire an existing business, employee rights and contracts are protected under German labor law (Betriebsverfassungsgesetz). This can streamline workforce management processes.

Disadvantages:

  • High Capital Requirement: Acquisition costs can be significantly higher compared to starting a new business.

  • Cultural Integration Challenges: It may take time to align with the existing team and operations.

  • Limited Flexibility: You may have to adapt to the current structure of the acquired business, and restructuring could incur additional costs.

  • Hidden Liabilities: Special attention must be paid to the “Due Diligence” process when acquiring a business in Germany. The acquired company may have outstanding debts or legal issues from the past.

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Cost Comparison

Establishing a company in Germany generally requires lower initial costs. However, as the market entry process extends, operational expenses may increase. For example, setting up a GmbH (Limited Liability Company) requires a minimum capital of 25,000 Euros. Acquisitions, on the other hand, demand much higher initial investment costs; for companies with a large customer base, this cost can reach millions of Euros. Nevertheless, the existing revenue streams of the acquired company can quickly offset this expense.

Risks of Starting a Business in Germany

Starting a new company is an exciting step for many entrepreneurs, but it is also a risky process. When establishing a business from scratch in Germany, you should be aware of the following risks:

  • Difficulty in Market Adaptation: Starting a new company in Germany begins with a lack of market recognition. Building a customer base, creating brand awareness, and gaining trust takes time.

  • High Competition: The competitive environment in Germany is intense. In many sectors, you may have to compete with established companies and strong brands.

  • Bureaucratic Barriers and Processes: The process of starting a business in Germany involves various bureaucratic procedures, such as registering with the trade registry, obtaining residence permits, and completing tax processes.

  • Uncertainty in Investment Returns: It may take some time for a new company to establish itself in the market and achieve profitability. During this period, you may face challenges in managing cash flow and meeting capital requirements.

  • Risk of Non-Compliance with Regulations: Germany’s business laws are highly stringent and regulated. Failing to meet tax obligations or neglecting employee rights can lead to serious legal consequences.


Risks of Acquiring a Business in Germany

Although acquiring a business often carries less risk, there are still certain risks to watch out for:

  • Hidden Debts and Financial Obligations: The acquired company may have outstanding debts or financial liabilities from the past. Such situations can directly impact the financial health of the company.

  • Legal Disputes: You may encounter legal disputes or litigation processes related to the acquired company, leading to financial burdens after the acquisition.

  • Cultural Integration Challenges: Aligning with the existing employees, business practices, and company culture may take time, making it difficult to implement new management strategies.

Lack of Strategic Fit: If the operational structures or market strategies of the acquired company do not align with your objectives, this can result in wasted time and resources.

Opportunities of Starting a Business in Germany

There are also numerous opportunities for entrepreneurs looking to start a business from scratch in Germany:

  • Innovation and Freedom: You have the chance to design your own business model, build your brand from scratch, and implement a unique marketing strategy.

  • Germany’s Incentive Programs: Germany offers various incentive and subsidy programs to support entrepreneurs. You can benefit from tax reductions, financial aids, and EU funds.

  • Control Over Investment: By starting a business, you can directly shape your investments according to your goals, which is advantageous for long-term planning.

  • Creating a Brand from Scratch: Building your own brand allows you to establish a profitable business model and carve out a unique position in the market.

 

Opportunities of Acquiring a Business in Germany

An acquisition allows you to leverage the existing infrastructure and customer network of an established business:

  • Utilizing an Existing Customer Base: Acquiring a company provides direct access to its existing customer base, allowing for faster integration into the market.

  • Achieving Profitability in a Short Time: Thanks to the financial stability and operational infrastructure of the acquired company, you can achieve profitability faster compared to starting from scratch.

  • Ready Infrastructure: Without having to deal with production facilities, employees, or supply chains, you can focus directly on your business.

  • Ease of Legal Processes: By acquiring an existing business, you face fewer bureaucratic hurdles in managing employee contracts and ongoing business relationships.

Which Option Suits You Best?

Every entrepreneur has different goals and strategies. When making your choice, you should ask yourself the following questions:

  1. What Is Your Goal? Are you aiming to build a long-term brand, or do you want to benefit from an existing market share?

  2. What Is Your Financial Situation? Can you afford a significant initial investment?

  3. What Is Your Risk Tolerance? Are you comfortable dealing with uncertainties?

  4. Are You Familiar with Legal Processes? Do you have knowledge of Germany’s trade and labor law regulations, or do you have access to a consultant who can assist you in this area?

 

The Importance of Researching the German Market

Conducting comprehensive market research is essential for entrepreneurs aiming to establish or acquire a successful business in Germany. Steps such as competitive analysis, target audience analysis, and examining market trends are crucial to developing a business model and minimizing risks.

Given Germany’s dynamic economy and strict regulations, it is equally important to have in-depth knowledge about business establishment processes, tax legislation, and labor laws. Additionally, factors such as distribution channels, marketing strategies, and cultural differences should also be evaluated as part of the market research process.

By doing so, entrepreneurs can seize opportunities specific to the German market and ensure their businesses remain sustainable in the long run.

The Importance of Working with a Consultant

Whether you are planning to establish a company or acquire an existing one in Germany, working with an experienced consultant throughout the process provides a significant advantage.

In particular:

  • Due Diligence Processes: Professional expertise is needed to evaluate the financial health, legal status, and operational suitability of the company you intend to acquire.

  • Tax Regulations and Labor Law: Consulting a specialist on Germany’s complex legal framework helps minimize potential risks.

  • Time and Resource Management: Professional guidance prevents unnecessary delays and directs you toward the most effective steps.


Collaborating with a consultant not only reduces risks but also accelerates the processes, paving the way for success.

The Importance of Understanding German Business Culture

Doing business in Germany requires understanding the dynamics of the local business culture in a country with a rich history and cultural heritage.

Key aspects of German business culture include:

  • Formality and Hierarchy: Rules and hierarchical structures are significant in the German business world, where clarity and professionalism in communication are expected.

  • Direct Communication: The business environment favors open and straightforward communication, which provides an opportunity to build trust-based, long-term relationships.

  • Quality and Reliability: German business culture places high importance on quality and attention to detail, making it easier for entrepreneurs to establish trustworthy partnerships.

  • Bureaucracy: Company establishment and regulatory processes can be time-consuming due to detailed bureaucratic requirements.


Understanding and adapting to German business culture offers entrepreneurs a competitive edge. By seeking support from local business partners and consultants, they can navigate these cultural differences more effectively and build a successful business.

For more detailed information on German Business Culture, feel free to explore our in-depth article.

Support for Entrepreneurs in Germany

Germany is a country that wholeheartedly supports entrepreneurs. In addition to government institutions such as the Federal Ministry for Economic Affairs and Climate Action (BMWi), financial organizations like the KfW Bankengruppe provide various forms of assistance to entrepreneurs. Moreover, incubators and innovation parks in major cities like Berlin, Munich, and Hamburg offer office space, mentorship, and networking opportunities. Platforms such as Business Angels Network Deutschland (BAND) connect entrepreneurs with angel investors. The entrepreneurial ecosystem in Germany is constantly evolving and strengthening.

Conclusion and Evaluation

Starting or acquiring a business in Germany comes with its own set of advantages and disadvantages. When considering these options, it is crucial to take into account Germany-specific legal regulations and the investment climate, in addition to factors like cost, risk, and capital. With the right strategy and business model, you can make a successful investment in this attractive market. By choosing the option that best aligns with your goals, you can make the most of the opportunities that Germany offers.

What Can We Do For You?

As MHR & Partners, we are directly and indirectly active in more than 20 countries worldwide. We aim to operate with 10 branches in 100 countries in 10 years. We offer you end-to-end consultancy and support services in establishing a company, obtaining a residence permit, and in all operational processes abroad, primarily financial issues.

Our priority is to provide consultancy services to companies with a growth vision and business strategy abroad. We attach particular importance to the uninterrupted continuation of our services with the assurance of MHR & Partners (Mühür YMM AŞ) after the company establishment stages. Our core mission is to be a safe harbor and provide sustainable services.

We want to be a bridge to our customers’ business plans for growth and development, even in the most remote parts of the world.

To establish a business in Turkey or Europe (Germany, The Netherlands, Belgium, UK, Romania, Bulgaria, Montenegro), you can contact Sworn-in Certified Public Accountant Mehmet Akif Özmen directly (+90 542 830 3408 or akif.ozmen@mhrpartner.com).

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