German firms may reconsider UK links without Brexit clarity
Joachim Lang, head of the powerful BDI, told the BBC there was "a certain urgency" for companies that do business in Britain.
After meeting with the UK government, he said firms would need a year to brace for a "no deal" scenario.
The BDI recently asked its members to prepare for a "very hard Brexit".
"We cannot wait until March 2019, that's obvious," Mr Lang said, referring to the date on which Britain is due to leave the European Union.
"You need to be prepared, otherwise the damage will be much bigger, and in these contingency, plans, one year ahead - that's pretty normal, so we need decisions by March 2018."
"In certain sectors the damage is already close", he added, singling out German manufacturers that source important components from the UK.
Britain imports more goods from Germany than any other country, and exports more to Germany than any other European nation.
Mr Lang, who met with Prime Minister Theresa May last month, said the complexity of Britain's withdrawal from the EU was "probably bigger than some people expect it to be".
"If you look at 20,000 legal Acts that the United Kingdom is going to leave, 750 international agreements that will be no longer valid - this is causing a lot of headaches all over Europe and it should also cause this headache [in the UK]," he said.
"The longer [the negotiations take], the closer politics comes to reality in business."
Although some German industrial sectors have reportedly seen exports to Britain drop because of the uncertainty surrounding Brexit, Mr Lang stressed the country's business community "completely supported" the way negotiations were being handled by EU representatives in Brussels.
"I have just come from a meeting with the CEOs of German companies and we are very much aligned - it is one direction," he said.
Mr Lang reiterated the BDI's long-held position that the EU's so-called "four freedoms" - the right to move goods, capital, labour and services around member states - were inseparable, and would not be compromised in pursuit of a Brexit deal.
"This will not happen, and it's a very romantic idea that it could happen, because the EU27 at the end is more important than just one single country, even if it is the United Kingdom," he said.
"There is no doubt that we regret the decision of the United Kingdom to leave the European Union. We all want to do business, and we want to go on doing business."
However, Mr Lang cautioned that "if it is the will to leave the European Union, we need to reduce the damages that can be caused by the Brexit on both sides of the Channel".