The Forum for Private Business is currently running a laudable campaign Get Britain Trading which aims to create a business environment more conducive to the prosperity of private businesses in the UK. Britain is very much an SME economy, and it’s the success of our small businesses that will hold the key to economic recovery.
One of the biggest issues facing SMEs is succession, and this is a dilemma facing more businesses. The baby boom generation is looking to realise the value in their business and enjoy a well earned retirement, whilst we’ve also seen an increasing number of family firms find the aspirations of the next generations lie in different pursuits. A management buy-out is sometimes considered and this can work well. However, it does mean that a small group of individuals must raise a significant amount of cash and the consequent burden of debt can have a negative effect on both the individual and the business. Also, at some point in the future, the management team will look to exit. The issue of succession rears again.
Selling to a competitor may attract a good price, as the buyer may pay a premium to acquire key skills, intellectual property or a customer base. However, this route is often not palatable to the business owner, who may have spent a lifetime trying to outdo the competition. A trade sale will often lead to a different way of doing business, a change in relationships, and frequently results in staff losses and sometimes relocation. Within the manufacturing sector, this relocation can sometimes mean to the other side of the world. The business goes, the jobs and skills go. Once they have gone, they will rarely return.
The motivator for many SME business owners to consider employee ownership as an exit route is that they can, as far as is possible, ensure the business remains in it’s geographic location, protecting local employment and retaining the wealth created in the area. Because many employee owned businesses insist that shares are only traded internally, then the possibility of an international predator acquiring the business is minimised. The other benefit is that because the company will continue to employ people, the ownership will continue and the need to think about future succession is removed. The business can focus on what it does best whether that’s serving the customers, innovative design, or producing the goods. Employee owned businesses can concentrate on the long term viability of the business, reinvesting profits in the future of the company.
Many successful innovative firms have chosen this route ; Clansman Dynamics, Gripple, Sutcliffe Play and Woollard & Henry to name just a few. Yet, awareness of the model is not high, and rarely presented to business owners when they discuss exit with their advisers.
Ensuring our businesses are able to flourish and succeed is fundamental to a healthy economy. We must ensure that business owners are provided with all options when it comes to succession. The employee owned model has produced excellent results: for the owner, for employees, for customers and for communities and the economy. It’s a way to Keep Britain Trading.