Derek Walker says policy makers should give company management exit strategies as much attention as start-ups and inward investment
A business succession time-bomb could blow a hole in the economy unless Welsh business owners adopt innovative forms of exit strategy. Businesses in Wales need to recognise the dangers of poor or non-existent succession planning. The main finding of a report published by the Wales Co-operative Centre today says they should take up the opportunities offered by employee ownership to avoid business transition failure.
Startling figures suggest that poor business succession planning is a very real problem for Wales – particularly for small, medium and micro businesses. Our economy is heavily dependent on these SMEs. Over half of private sector employment is within firms of less than 250 people. Micro-businesses of less than 10 people, account for a third of the private sector workforce. Small business owners in Wales hold onto their firms for longer than the UK average and a fifth of them have been running their businesses for over 20 years. The clock is ticking.
Business succession receives little policy discussion in Wales despite the fact that businesses close and jobs are lost when the process fails. Employee ownership can be a viable option for business owners looking for an exit strategy. It enables them to realise the value of their businesses, safeguard jobs and the future of the business.
Employee ownership and worker co-operatives can be used to save businesses where the owners or funders have decided to withdraw at short notice. Some of the Remploy factories may take this route. But, it is more likely to succeed if a longer term, planned approach to business succession and employee ownership is taken.
Employee-owned solutions can safeguard continuity with suppliers and purchasers, strengthen long term sustainability of the business and allow business owners to withdraw at a timescale that suits them and the company. There is evidence that suggests employee-owned businesses out-perform their competitors on a range of measures, including productivity and sustainable job creation. They are more resilient through recession, and generally emerge quicker.
Wales boasts a number of employee owned businesses, representing the different forms employee ownership can take. In Ebbw Vale, PrimePac Solutions Ltd was founded as a worker co-operative after their parent company left the Welsh market place. Nineteen individuals placed their redundancy payments in the business. Seven years later, it has an annual turnover of £1.8 million and has paid out dividends to its shareholders greater than the amount originally invested.
Aber Instruments founders decided to investigate employee ownership as a long-term exit strategy after finding other withdrawal routes didn’t meet their expectations. Over ten years they have passed 85 per cent of the business to direct or indirect employee ownership with the original owners now holding a 15 per cent share of the company. This has allowed the business to stay in Aberystwyth.
Allan Meaks’ SCS Group in Caerphilly decided to instigate an employee ownership program in 2005. Fifteen percent of the business is now held in trust on behalf of the employees. Although SCS’s succession process was slowed due to the recession, Allan feels no need to explore other exit routes. He is no hurry to leave and the employee buy-out will still go ahead, just over a longer period of time.
Business succession is a real issue in Wales. Employee ownership offers the best of both worlds: a well-planned and financially acceptable exit route for business owners; plus a viable long-term future for the employees. But, there are barriers to progressing more employee ownership in Wales.
More awareness is needed of the importance of good business succession planning and the benefits of the employee ownership approach. With financial help from Welsh Government and European funding, the Wales Co-operative Centre’s Business Succession Project is working hard to promote the benefits of employee ownership. and our new report Employee Ownership: Defusing the Business Succession Time Bomb in Wales should go some way towards raising awareness in the relevant circles.
Business owners need signposting towards good advice on business succession and exit strategies such as that provided by the Wales Co-operative Centre. There is a need for equity funding specifically designed to underwrite or fund employee buy-outs in the SME and Micro-business sectors as these are the sectors where it is most needed – and hardest to raise.
Finally, there is a need to undertake more research to find out just how big an impact this time-bomb could have.
The Wales Co-operative Centre offers advice and support to business owners considering their exit strategy. It can help install employee ownership solutions that are right for each company on a case-by-case basis. Unfortunately, whilst business owners remain unaware of the opportunities created by employee ownership and oblivious to the dangers of poor succession planning, many businesses will fail unnecessarily.
Recently, the focus in Wales has been on start-ups and inward investment. This is understandable. However, business succession is a very real issue that is ticking away in the background of the Welsh economy. The business succession time bomb needs to be defused or the collateral damage will be Welsh employees whose jobs and futures could have been saved.