Rooted and resilient: The case for employee ownership in the Welsh private sector

As many as three-quarters of small and medium sized enterprises (SMEs) in Wales have not planned for the future transfer of their business. Awareness of the need for succession planning is low and many business owners are not aware of the issues that strategic succession planning involves, or the timescales that need to be considered.

75%

As many as three out of every four SMEs in Wales may not have a succession plan in place

Awareness

Many SME owners have a limited understanding of the detailed tax, legal and due diligence implications of selling their business and have unrealistic expectations regarding the price of their business.

A new report published on Friday 30^th June 2017 to coincide with Employee Ownership Day, a UK wide celebration of employee ownership, shows that as many as three out of every four Small and Medium Sized Enterprises (SMEs) in Wales may not have planned for the future transfer of their business.

The report, ‘Rooted and resilient: The case for employee ownership in the Welsh private sector’,  was commissioned by Social Business Wales in partnership with Welsh Government in response to anecdotal evidence that suggested that Welsh SMEs are not actively planning their succession. Research agency Wavehill undertook a survey of over 300 businesses across Wales to ascertain their readiness for business transfer and how they would expect to approach it.

It showed that across Wales, awareness of the need to plan for the future ownership of businesses is low and many business owners are not aware of many of the issues involved in planning for succession, or the dangers of not starting the process early enough.  In an economy dependent on small SMEs, the implications of ignoring succession planning could be significant.

The report calls for serious consideration of employee ownership as a viable approach for owners looking to plan their exit strategy. It says a gradual management transfer process to employee ownership can ensure relations with employees, customers, suppliers and the local community are sustained once the founder has exited entirely.

The research suggests that there is an opportunity to embed employee ownership in longer term SME business planning in Wales, as well as positioning it as a response to severe succession issues. Broadening the awareness and understanding of employee ownership as a business succession approach offers a way for many more SME owners to realise the value of their business in a way that creates benefits for themselves, for their employees and for the local economy.

In terms of support, Social Business Wales, which is funded by Welsh Government and the European Regional Development Fund and delivered by the Wales Co-operative Centre, was clearly seen by the stakeholders interviewed for this study as the ‘go-to’ support service for employee ownership support in Wales.

The report concludes that recently introduced tax exemptions and the focus on business growth in Wales supports approaches for developing employee ownership as an integral part of a wider business succession offer in Wales.

The report is published on the same day that the Employee Ownership Association (EOA), the UK body for promoting and developing Employee Ownership, runs its fifth annual Employee Ownership (EO) Day. EO Day is the national celebration of employee ownership and an opportunity for to raise awareness of the economic benefits and positive impact the sector has on the UK economy. The EOA asserts that employee owned businesses contribute £30bn GDP to the UK economy annually.

Derek Walker, Chief Executive of the Wales Co-operative Centre, said:

“Employee ownership offers a succession approach that is fair to everyone. Business owners can leave their business in the knowledge that they have got a fair price for it and they have also ensured that the future of their employees has been safeguarded. Employees get to take control of their own destiny and continuity of supply is assured for suppliers and customers”

“Evidence shows that employee owned businesses are resilient and are more likely to grow in tougher economic times. When employees retain ownership of a business it is much harder for that business to then be sold to external competitors allowing it to continue to grow whilst staying firmly rooted in the community it was started in.”

For further information about employee ownership, please visit http://bit.ly/rooted-and-resilient. The executive summary of ‘Rooted and resilient: The case for employee ownership in the Welsh private sector’ is available to download from Friday 30th June 2017.