Our new report ‘Rooted and resilient: The case for employee ownership in the Welsh private sector’, shows that as many as three-quarters of small and medium sized enterprises (SMEs) in Wales have not planned for the future transfer of their business.
The report 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.
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
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.
Research agency, Wavehill, undertook a survey of over 300 business across Wales to ascertain their readiness for business transfer and how they would expect to approach it.
Sucession planning: 75%
As many as three out of every four SMEs in Wales may have not have a succession plan in place
Case for employee ownership
There is strong evidence to suggest that employee owned businesses out-perform companies with other ownership structures. 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.
Employee ownership offers a resilient business model with potential for stimulating sustainable wealth creation and equitable distribution
What is employee ownership?
Employee ownership is defined as ‘businesses which are totally or significantly owned by their employees’.
Traditionally, employee ownership can take one of three forms:
- Direct employee ownership –employees are individual shareholders with a majority of the shares in their company;
- Indirect employee ownership – shares are held collectively on behalf of employees, normally through an employee trust;
- Combined direct and indirect ownership – a combination of individual and collective share ownership.
- There is increasing evidence suggesting that employee owned businesses out-perform firms with more restricted ownership structures. Between 2014 and 2016, the UK Top 50 Employee Owned Businesses’ combined sales figures had increased by 10.2%, to £22.6bn. In comparison, UK GDP as a whole had increased by 7.7% over the same period. Social businesses are businesses driven by social or environmental aims. In Wales, a large number of these are focused on improving a particular community or improving health and well-being.
- Employee ownership offers a resilient business model with potential for stimulating sustainable wealth creation and equitable distribution.
- Tax reliefs are available for the sale of businesses to Employee Ownership Trusts at market value. A range of finance options can help structure the transfer of ownership.
Read the report
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Social Business Wales - succession planning experts
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 in-house team of experts can advise on a wide range of aspects that are relevant to the transfer of ownership of an SME to employees. They are able to support a consideration of the corporate finance, tax and governance implications of the transition process. The team also provide the skills and expertise necessary to deliver the broad staff engagement that is required to develop an understanding of the requirements of an employee buy-out and carefully consider potential pathways towards the full transfer of ownership alongside the requisite governance structure.
Social Business Wales