One thing has been clear since the COVID-19 pandemic: financial resilience is an important factor for the long-term success of a business. Many businesses in Germany had to contend with declining sales during the pandemic – in fact, 15,800 filed for bankruptcy in the first year. After a decade of growth, Germany's economic output collapsed significantly in 2020, with the price-adjusted gross domestic product (GDP) falling by 4.9% compared to 2019.

However, not all businesses were affected equally. A 2022 survey of 237 businesses in Germany across all sectors found that, collectively, 39% of the businesses were considered "resilient", meaning "they neither registered short-time work nor were acutely affected by supply difficulties", (20%) or "were able to recover from the restrictions immediately after the lockdown thanks to their ability to recover" (19%).

In this article, you will learn what resilience means in general and what the difference is between financial and economic resilience. We also explain why financial resilience is important for businesses in Germany and what strategies exist to strengthen resilience.

What's in this article?

• What is resilience?
  
• How are financial and economic resilience different?
  
• Why is financial resilience important for businesses in Germany?
  
• Strategies for the financial resilience of businesses in Germany
  

What is resilience?

The term "resilience" originally comes from psychological research and describes the ability of "an Individual to develop successfully despite unfavourable life circumstances and critical life events". Similarly, economic resilience is the ability of a company to cope with unforeseeable crises in the wider economy. It doesn't matter what kind of crisis it is – a global pandemic, geopolitical tensions, disrupted supply chains, rising energy prices, or a sudden drop in demand.

There are two facets to resilience. First, it includes the preventive ability to withstand a disruptive event. Secondly, it can mean the reactive ability to recover as quickly as possible after a crisis. Hence, businesses that are robust or otherwise capable of regeneration are referred to as "resilient". In contrast, businesses that do not have these characteristics can be considered vulnerable.

There are different forms of resilience for businesses.:

• Technological resilience: This term describes a business' resilience to cyberattacks and technical disruptions through targeted investments in digital security and innovation capabilities.
  
• Organisational resilience: This term means that a business remains flexible even under difficult conditions, successfully retains and integrates employees, and adapts its processes to new circumstances.
  
• Management resilience: This term describes the ability of managers to act proactively and decisively in crises and to take preventive measures to stabilise the business.
  
• Employee resilience: This is the ability of staff members to deal with changes and stress – strengthened by training and a supportive corporate culture.
  
• Supply chain resilience: This term describes how well a business can respond to disruptions in the supply chain by flexibly procuring replacements and identifying risks at an early stage.
  
• Ecological resilience: This represents a business' ability to adapt to environmental changes, such as climate change, and to sustainably meet regulatory requirements.
  

However, when resilience is discussed in the context of business, it usually means financial or economic resilience.

How are financial and economic resilience different?

Financial resilience refers to the ability of a business to remain financially stable, even in times of crisis. Financial resilience is determined, among other things, by the following aspects:

• Liquidity
  
• Reserves
  
• Capital structure
  
• Cost factors
  
• Sources of Income
  
• Solvency
  
• Financial planning
  

The key question in financial resilience is always, "Can the business pay its bills and continue operating economically, even during a crisis?" In this way, it is a sub-area of economic resilience. In addition to financial stability, economic resilience consists of other structural and strategic elements that can contribute to a business' resilience. These include:

• A resilient business model
  
• An adaptable organisational structure
  
• Reliable partnerships and networks
  
• Effective risk management
  
• The capacity for innovation
  

Why is financial resilience important for businesses in Germany?

Financial resilience is important for surviving economic crises and securing the long-term existence of a business. It can be likened to a protective shield, because it helps businesses meet Payment deadlines, avoid insolvency and maintain the trust of business partners and lenders.

Financially resilient businesses are better able not only to cope with crises but also to strategically use them to their advantage. Only one-fifth of small and medium-sized businesses (SMEs) in Germany have such a high level of resilience that they can emerge even stronger from crises, according to a 2023 report. While others have to save up enough money, resilient businesses remain financially flexible. This allows them to, for example, invest in innovation and gain a competitive advantage.

Challenges in Germany

Financial and economic resilience is particularly relevant for businesses in Germany, as they face specific challenges.

High energy prices

Energy costs in Germany are among the highest in the world. This especially affects energy-intensive industries and can weaken the economic resilience and competitiveness of Individual businesses. Affected businesses are forced to be extremely cost-efficient.

Shortage of skilled workers

Demographic changes have led to a shortage of skilled workers in Germany. According to the German Economic Institute (IW), the country lacked over 530,000 skilled workers in 2024. By 2027, this number could be as high as 728,000. The shortage of skilled workers increases personnel costs because businesses are forced to pay higher wages or invest in expensive recruitment measures. At the same time, the lack of qualified employees can reduce productivity and delay innovation projects, which can also have a negative impact on financial resilience.

Sustainability requirements

According to the Federal Ministry for Economic Affairs and Energy, "The combination of ambitious climate protection and sustainable economic growth…represents a central challenge for today's economic policy". Businesses in Germany are under increasing pressure to operate sustainably. This requires investments in environmentally friendly technologies and processes, which can entail financial burdens, at least in the short term.

Global challenges

In addition to domestic challenges, global developments also influence the economic stability of businesses in Germany.

Global competitive pressure

Businesses in Germany are increasingly under pressure from international competitors, especially China. A survey by the German Economic Institute shows that 78% of the businesses surveyed that have competitors from China report that Chinese competitors offer comparable products at significantly lower prices. This price pressure is forcing businesses in Germany to reduce their margins or postpone investments, which is affecting their financial resilience.

Geopolitical tensions

International conflicts and uncertainties can create a significant burden on the economic stability of businesses in Germany. One study by the Deutsche Bundesbank shows, for example, that rising geopolitical risks in trade partner countries can make imports more expensive and disrupt supply chains. In addition, measures such as tariffs can have direct economic effects. It has been estimated that basic tariffs of 20% on imports from the EU and 60% on imports from China would cause economic damage of €33 billion for Germany.

Strategies for the financial resilience of businesses in Germany

To make a business crisis-proof involves certain financial resilience strategies.

Proactive liquidity management

A key element of financial resilience is ensuring long-term solvency through sound liquidity management. Decision-makers must know their business' current liquidity needs and how they will develop in different scenarios. Cash-flow forecasts and stress tests help to anticipate bottlenecks at an early stage. Calculations using artificial intelligence (AI) can help evaluate complex data sets and make liquidity predictions.

The basis of forward-looking liquidity management is complete control of all cash flow and relevant key figures. With Stripe Payments, you can record all transactions in real time and view them clearly in a personalised dashboard. In addition, Payments gives you the opportunity to offer your customers locally preferred Payment methods, as well as accept payments worldwide.

A comprehensive emergency plan should also be part of forward-looking liquidity management. Ideally, this includes clear responsibilities and procedures in the event of unforeseen events that endanger the business' liquidity.

Income source diversification

Businesses that are not dependent on a major Customer or a single product increase their economic resilience. There are several ways to diversify Income sources. For example, there is the cash cow strategy: a particularly profitable core business ensures that revenues can flow into new ideas, products and services. This means that businesses have a secure source of Income that allows them to invest in other fields. Broad diversification is a second strategy, in which a business builds up several, equally strong, Income streams – such as different services or product lines.

Stripe Billing can help you diversify your Income. With Billing, for example, you can manage subscriptions and recurring invoices, or bill for usage-Based services. If you want to operate a digital Marketplace or an online platform, you can Integrate Payment options with Stripe Connect.

Cost flexibility

Fixed costs tie up capital in the long term and limit financial flexibility. In contrast, variable costs offer the opportunity to quickly adapt expenses to the current business situation. As a result, resilient businesses try to arrange their cost structure so as to reduce fixed obligations as much as possible and increase variable line items. For example, specific tasks might be able to be carried out by freelancers rather than permanent employees. In this way, businesses can immediately reduce expenses (in this case, personnel costs) in economically difficult situations.