Is it too late to defuse the Business Succession Time Bomb in Wales?
Business succession is a ticking time bomb in Wales.
Our economy is dependent on SME’s and Micro businesses. In Wales our business owners stay with their businesses longer than other owners anywhere else in the UK. If business owners do not have a robust exit strategy in place, they may find that the only option remaining to them when the time comes is to close the company and make their employees redundant.
According to the Federation of Small Businesses research, business owners in Wales have owned or co-owned their businesses for an average of nearly 16 years and 29% of businesses have been owned by the same owners for 21 years or more. This suggests that business owners in Wales see the growth and nurture of their businesses as a long-term commitment and devote a large proportion of their lives to it. However, it also suggests that there is a massive proportion of business owners approaching a realistic retirement age. With approximately 99% of businesses in Wales classified as SME’s or micro-businesses, it is apparent that these business owners succession plans have more than just the successful continuation of their companies dependent on them.
29% of small businesses in Wales equates to somewhere in the region of 15,000 owners who could be looking to leave their business in the next couple of years (See footnote). In an economic climate which makes trade sales difficult for most owners and in a country where the vast majority of businesses are too small to consider public listing, the effect of poor or non-existent succession planning on the Welsh economy cannot be underestimated.
If 15,000 business owners closed theirs shops, factories and warehouses tomorrow, where would that leave the Welsh economy?
Media focus lately has been on business start-ups, inward investment and the dramatic reduction in employment in the public sector currently occurring in Wales. Yet, with the implied need to find replacement employment from the home grown, domestic private sector, very little concern has been raised about the approaching issues of an ageing owner manager population.
Who will ensure these existing businesses survive, grow and flourish?
Our report published today looks at these issues in detail; it identifies issues with the traditional approaches of family succession and trade sales and offers employee ownership as a viable and sustainable alternative which benefits both the business owners and the employees.
The report, which has been endorsed by the Federation of Small Business in Wales and written by the Oxford Centre for Mutual and Employee-owned Business at Kellogg College, Oxford University suggests that there is a need for
- Further awareness of the need for earlier succession planning and for businesses to allow a reasonable amount of time to manage an exit strategy effectively
- A one-stop shop that integrates the knowledge of Wales Co-operative Centre, Federation of Small Businesses in Wales, Finance Wales, Co-operative and Community Finance and the Employee Ownership Association for owners contemplating an exit strategy.
- An equity fund to help facilitate more employee buy-outs
- More extensive research on the topic to gain a clear focus on the risks and precise costs that bad business succession strategies have on Wales.
Employee ownership schemes, employee buy-outs and support for the development of worker co-operatives could all contribute to a more stable economic future for Wales – but the work needs to be undertaken now.
For example, Skye Instruments in Mid Wales produces electronic instruments used to monitor the impact of micro-climate variations on crops. The owners came across the idea of employee ownership via the Wales Co-operative Centre and were attracted to the possibilities for using it to secure the businesses location in Mid Wales. After initial difficulties in finding accessible and clear advice on how to approach the process the owners presented several options to their staff who voted for an employee benefit trust. This was set up in 2009 and 40% of company shares are now in the trust. The remaining 60% of the shares will be sold to the trust over the next 6 years and whilst the owners will have exited financially, the hand over process will be on-going and they will retain involvement in the business.
Installing employee ownership mechanisms and developing and engaging staff takes specialist knowledge, time and effort and the work needs to be undertaken from the moment the owner starts considering succession – not from the moment the owner starts trying to sell their business. At the Wales Co-operative Centre, we have been involved with employee ownership and worker co-operatives ever since we started 30 years ago. Our specialist Business Succession Team offer advice and support to business owners and employees taking their first steps down the road to employee ownership. They can help provide advice on suitable employee ownership models, look at how vehicles such as Employee Benefit Trusts and Share Incentive Plans can be used to support the transfer process, and provide support with finding finance, business planning, management and governance issues.
So is it too late to defuse the Business Succession Time Bomb in Wales?
No, it’s not – but to avoid a massive drain on the Welsh economy over the next few years it is essential for politicians, business advisers and business owners themselves to consider all sorts of plans for viable and sustainable business succession including the benefits of employee ownership and to ensure support and assistance for those businesses is provided as and when they need it. There is every reason to believe that long-term succession planning leads to long term success but that planning needs to be implemented and the available options discussed now.
The Wales Co-operative Centre’s Business Succession Team is running a series of business succession roadshows in Swansea, Caerphilly, Bangor and Ruthin. Further information and ticket booking facilities are available on the website here.
Figures taken from Welsh Government’s ‘Economic Renewal: A New Direction’ http://wales.gov.uk/topics/statistics/articles/economicrenewal/?lang=en
In 2009 there were 53,205 active SME’s (1 – 249 employees) in Wales. Federation of Small Business Research suggests 29% of Welsh Businesses have had the same owner for 21 years or more. 29% of 53,205 is equal to 15,429 small businesses.