Small and medium-sized enterprises (SMEs) make up the vast majority of companies in Germany: 99%. Looking ahead to the future, SMEs should focus on digitizing their processes and services. Digitization offers a wide range of opportunities for companies to reduce costs, optimize business processes, and enter new markets.

Here, we’ll explain the benefits of digitization for SMEs, why and how companies should develop a digitization strategy, and which business processes are best suited for digital transformation.

What’s in this article?

• What are SMEs?
  
• Why is digitization important for SMEs?
  
• Which business processes are particularly suitable for digitization?
  
• Why and how should SMEs develop a digitization strategy?
  
• What funding programs for digitization are there for SMEs?
  

What are SMEs?

SME stands for “small and medium-sized enterprise.” In Germany, SMEs are defined based on their turnover and number of employees, following the European Commission’s recommendation 2003/361. A business is classified as an SME if it employs fewer than 250 people and has an annual turnover of no more than €50 million, and/or an annual balance sheet total of no more than €43 million. There are different thresholds for micro, small, and medium-sized enterprises.

EU SME thresholds

Source: German Federal Statistical Office

The specified thresholds apply to individual businesses. For businesses that are part of a larger group, the turnover, total assets, and number of employees must be calculated accordingly, based on the size of the shareholding.

In 2021, the Federal Statistical Office counted around 3.1 million SMEs in Germany, which accounted for 29% of the total turnover generated. Around 55% of company employees work in SMEs.

What's the difference between SMEs and startups?

SMEs form the backbone of the German economy and are often active in traditional sectors, while startups often experiment with new business models. SMEs can include both new companies and established companies that have been around for many years or decades. Startups, on the other hand, are typically young enterprises, usually no more than five years old. The classification of SMEs based on the thresholds outlined in the table above clearly regulates the number of employees and annual turnover. Startups are not subject to any specific requirements in this respect.

Why is digitization important for SMEs?

The Federal Ministry of Economic Affairs and Climate Protection defines digitization as “the use of data and algorithmic systems to develop new or improve existing processes, products, and business models.” Four aspects are distinguished: digital products, processes, networks, and business models. Digital products are data-based services that can be used independently or integrated into physical goods. They include software and web applications.

Digital processes are data-based representations of reality that are used to organize and control processes. When companies map entire processes as integrated data models, they can, for example, operate online stores or automate their production. Digital networking describes how individual processes are connected within overall digital systems, whether within the company or with third parties such as customers. Digital business models exist when companies offer digital products or services for a fee.

Digital transformation refers to the process of converting analog information into digital formats and integrating digital technologies into various sectors of the economy and society. SMEs and large enterprises alike should take advantage of the many opportunities that digitization offers. Companies that recognize the opportunities of digitization are better equipped to meet future challenges and achieve sustainable growth. On the other hand, digitization is not a passing trend, but a necessity for SMEs to achieve long-term success.

Some of the benefits digitization can have for SMEs include:

• Increased efficiency and reduced costs: By adopting digital technologies, SMEs can automate and streamline their internal processes. This results in more efficient use of resources and a significant reduction in operating costs. For example, by digitizing data and eliminating the need for storage in bulky filing cabinets, businesses can save money on paper and rent. Automated processes can also save a lot of time.
  
• Competitive advantages: Companies that invest early in digitization can gain significant advantages over competitors that do not. Digitized business processes, innovative products, or a robust online presence can go a long way toward establishing a strong market presence.
  
• Opening up of new markets: Digitization enables SMEs to access international markets. For example, ecommerce platforms can be used to offer products and services globally. This offers significant growth opportunities that were only available to large companies before digitization.
  
• Promotion of innovation: Digital technologies such as AI, big data, virtual reality, robotics and the Internet of Things enable SMEs to innovate and develop new products and services. These innovations can help SMEs explore and enter new business areas.
  
• Flexibility and agility: Digitization enables SMEs to respond more quickly to market changes and customer needs. In addition, cloud-based solutions and mobile technologies, for example, facilitate flexible working models and enable employees to collaborate efficiently from any location.
  
• Enhanced visibility: In addition to traditional advertising formats such as print ads, sponsorships, or radio spots, businesses now have many new ways to get noticed. These include online and mobile advertising, email marketing, social media campaigns, and influencer marketing. SMEs can also promote themselves effectively and inexpensively on their own website.
  
• Improved customer loyalty and outreach: An attractive online store or a user-friendly website can improve customer service and increase sales. It’s important not to underestimate how digital has changed customer expectations. Customers now expect quick responses to inquiries, personalized solutions, efficient service, and a variety of payment options as standard.
  
• Sustainability: Digitization in SMEs can also contribute to more sustainable business practices. By optimizing supply chains, adopting energy-efficient technologies, and reducing paper consumption, SMEs can reduce their carbon footprint and lower their environmental impact.
  

Which business processes are particularly suitable for digitization?

The potential of digitization for SMEs is virtually limitless, since nearly every business area and process can be optimized using digital concepts. Here are some examples:

• Payment processing: With the help of suitable systems, businesses can automate and digitize their payment processes. This can be made simple with Stripe Payments. With Payments, you can accept and manage payments quickly and easily. You can also offer your customers access to use over 100 payment methods. If you aim to implement cashless payments at the point of sale using card readers or mobile devices and integrate them directly into your accounting, consider exploring Stripe Terminal.
  
• Online sales platforms: The creation and optimization of an online store can help businesses expand their reach and thereby increase their sales opportunities.
  
• Marketing and sales: Search engine optimization and marketing improve online visibility and enable businesses to target potential customers more effectively. The same goes for email and social media marketing. And customer relationship management (CRM) systems facilitate personalized marketing campaigns and streamline customer interaction management.
  
• Automated accounting and invoicing: Digitization for SMEs isn’t just about optimizing customer-facing processes; it’s also about optimizing internal processes. Digital accounting software reduces manual effort, saves significant time, and minimizes errors. With Stripe Invoicing, for example, you can generate and send legally compliant invoices quickly and easily. This also applies to e-invoicing, which will be mandatory in business-to-business (B2B) transactions in Germany starting from 2025. Stripe Billing can support you with recurring billing and can help you manage your accounts and access detailed financial and revenue reports directly from the Dashboard. By using tools such as these, companies save resources, and also gain a clearer view of their financial status—enabling them to make more informed decisions.
  
• Personnel management: HR management software simplifies the management of employee data, performance reviews, and training initiatives. Digital platforms also enable more efficient recruiting, applicant management, and onboarding processes.
  
• Communication and collaboration: Internal and external communications can be enhanced through video conferencing and digital meetings, helping to reduce travel costs. Cloud-based tools can be used to foster collaboration and enable real-time document processing regardless of location. Businesses can also enable employees to work remotely from home.
  
• Production processes and quality management: The use of the Internet of Things and robotics can automate production processes, significantly speeding up the manufacturing of goods and reducing errors. Quality control and assurance can be managed by digital systems that continuously monitor product quality.
  
• Logistics: Digital solutions can improve the traceability of deliveries and facilitate communication with suppliers. Inventory and warehouse management can also be optimized.
  

Why and how should SMEs develop a digitization strategy?

Digitization in SMEs can proceed gradually, focusing on selective solutions. However, it’s important to create a digitization plan first to ensure that all the individual efforts work well together and produce combined benefits. Developing a well-planned digitization strategy should follow these steps:

• Analyze the current situation: The first step is to analyze and assess the current situation. What business processes are already digitized? What areas offer potential for improvement? What new business models and areas can be addressed?
  
• Define the goals: The second step is to set clear goals for the digitization strategy. First, identify the areas and processes that need to be digitized. Then determine the expected outcomes, such as cost savings, increased revenue, or improved customer satisfaction.
  
• Identify relevant technologies: Once the objectives have been defined, the necessary requirements must be established. The organization should evaluate which digital technologies and tools are appropriate for the specific projects at hand.
  
• Prioritize and budget: The next step is to prioritize the desired actions or initiatives. Which initiatives should be implemented first, and which are less urgent? These questions should be answered based on established goals and the available budget. Implementing new tools comes with a cost that must be accurately calculated.
  
• Train employees: Employees must be trained to become familiar with new processes and technologies. Therefore, SMEs should ensure that everyone involved is adequately trained.
  
• Monitor and adjust: Finally, SMEs should establish mechanisms to monitor the progress and success of their digitization strategy. If necessary, the strategy can be adjusted based on new insights, developments, and market requirements.
  

Graphic: Roadmap for developing an SME digitization strategy

What funding programs for digitization are there for SMEs?

Many organizations in Germany offer funding programs for digitization in SMEs. Businesses seeking advice or financial support for their digitization projects should gather comprehensive information about the available programs. The following list is just a selection:

• go-digital: The Federal Ministry for Economic Affairs and Climate Protection (BMWK) offers go-digital grants for consultancy services to help SMEs set up or expand their IT systems. The main areas covered by go-digital include digitization strategy, IT security, business processes, data literacy, and market development. It subsidizes consulting services up to 50%.
  
• State funding programs: State-level initiatives and programs also support SME funding for digitization efforts. In Baden-Württemberg, companies can apply for Digitalisierungsprämie Plus. They can receive between €5,000 and €100,000 for implementing new digital systems and training employees. SMEs in Hesse can receive funding that ranges from €4,000 to €10,000 through the DIGI-Zuschuss program, while businesses in North Rhine-Westphalia can receive up to €40,000 in Digitalisierungsgutscheine for digitization purposes. Similar funding programs are available in many other federal states.
  
• KfW Bank: Through the ERP digitization and innovation loan, KfW Bank offers promotional loans ranging from €25,000 to €25 million to German companies. Funding is provided for specific investments and working capital, and it can cover the entire financing needs of an innovative company.
  
• Other programs: Digitization funding for SMEs is not only available through programs specifically designed for small and medium-sized businesses. There are several funding programs with different focuses that are also suitable for SMEs, provided they meet the relevant requirements. For example, the Central Innovation Program for SMEs (ZIM) is an innovation funding program open to all sectors. It supports innovative research and development (R&D) projects that lead to new products, technical services, or improved production processes. As a result, this program is not only aimed at SMEs, but also at research institutions.