Action to educate businesses on EO succession could save thousands of ‘at risk’ jobs and businesses

The EOA welcomes new research that shows how many business owners will be looking to sell, divest or liquidate their shareholding over the next 10 years.

In the report Generation EO: The Great Succession Opportunity it details how 40% of older business owners intending to sell their stakes in small and medium businesses (10-249 employees) predict the risk of closure without the right buyer.

New research reveals that:

• Over two thirds of older owners of small and medium-sized businesses (10-249 employees) intend to sell or divest their shareholding over the next 10 years (indicates owners at 120,000 SME firms)
• Of that group, 43% predict the business will need to find completely new owners or face closure (indicates 51,600 SME firms).
• 17% of all older owners of SME businesses (10-249 employees) predict liquidation is the likely eventual outcome (indicates 30,000 SME firms employing an estimated 910,000 employees).

Generation EO: The Great Employee Ownership Succession Opportunity is published today by independent think tank Ownership at Work, in partnership with DJS Research and supported by the Federation of Small Businesses (FSB).  The research argues that after surveying a representative sample of 500 owners of SME businesses (10-249 employees) aged 43 and over, findings suggest at least 8% of all UK businesses with employees (120,000) will face owners selling up in the next 10 years.

Given less than 1 in 10 older owners say they are leaving because the business is in financial difficulty, researchers conclude the vast majority of these SMEs at risk of closing without a suitable buyer are commercially healthy companies.

More worrying still, one third of older owners planning to sell or divest in the next three years are only ‘quite prepared’, and one third selling or divesting at some point in the next 10 years have no plans in place whatsoever. While the research flags a significant risk to the economy, it also concludes that sales to employees might offer a solution that would protect jobs and businesses and provide a huge boost in economic productivity. Owners selling to employees don’t require an external third-party buyer and therefore typically have greater control over timings and – according to the research – report the sale experience to be almost entirely positive.

However, researchers identified a critical knowledge gap among older business owners around employee ownership (EO): 85% understand family succession and 74% trade sales, whereas just 53% know about selling to employees via a trust (currently the most popular route to EO).

Researchers suggest that simply by continuing to grow the numbers of employee owned (EO) businesses at the rate achieved in 2022-23 (37%), in five years’ time the UK would benefit from upto an additional £60bn in economic productivity every year from over 6,800 EO companies (citing recent research that employee owners are 8-12% more productive than peers at non-EO companies on a GVA per employee basis). Over 10 years, this would equate to 1 in 3 shareholding sales – indicating 33,000 – positively affecting the sustainability of thousands of businesses.

Researchers, supporters and sponsors are all urging policymakers to sit up and take notice of these findings which highlight a remarkable opportunity for a generational leap forward in levels of employed ownership whilst saving jobs and keeping thriving businesses operating in local communities.

Campbell McDonald, Chief Executive of independent charitable think tank Ownership at Work, said: “This research has highlighted an unprecedented number of business owners looking to sell up or shut down in the next decade, and there’s a huge risk to the economy if ignored. We know that employee ownership functions as a sustainable, productive succession option that contributes to a stronger, higher skilled, more resilient economy. Supporting the sector with an industrial strategy that does more to accelerate levels of employee ownership could turn this economic risk into a once-in-a-generation succession opportunity.”

Tina McKenzie, Policy Chair, Federation of Small Businesses (FSB), said: “Raising the profile of employee ownership, so more business owners are aware of it as an option, will help to strengthen the business fabric and community of the UK. Growing the number of employee-owned businesses could give a boost to everything from levelling up to the push towards net zero.

“Given the report’s findings around how many owners of businesses with employees are looking to hand on or sell their business in the next decade, there’s a big opportunity to give thousands of employees a greater stake in their firms – and in the economy. The Government can play a part by ensuring that employee ownership trusts retain their benefits in the tax system, and looking at ways to improve awareness of how they can help business owners, employees, and local communities.”

James de le Vingne, Chief Executive of the EOA, said: “Our small section of the UK economy is punching above its weight across multiple dimensions of impact on individuals, businesses, communities and the wider economy. 

“Employee ownership succession represents a huge opportunity for policymakers, business advisors and, of course, for the several thousand business owners looking to exit their businesses. There is the expertise within the EOA’s community with roadmaps to support this process, however, to scale this support we need government-backed policy and action if we are to avoid a silver tsunami of job and business losses.””

Andy MacInnes, Managing Director for B-Looney, who took the decision to adopt employee ownership six years ago said: “I’ve seen other executives who’ve done trade sales being made redundant. I’ve led two Management Buyouts (MBOs) and this has been a much better experience. Ordinarily you are working against the buyers to get their deferred considerations. In an Employee Ownership Trust (EOT) we are all working together.

“It was really good fun getting staff involved and being able to say it’s your company now. It was a lovely feeling of handing the firm on to staff, many of whom have been here for years.”

Gerry Young, Founder Director of RVE, a corporate finance advisory firm that advises business owners on the options for sale of their business, who supported B-Looney, said: “This reinforces our long-held belief that when businesses owners are looking at exit options, they should strongly consider the sale of the business to an Employee Ownership Trust. As the reports’ respondents describe, not only do you achieve a fair market price for the business you secure an independent future for the business and its employees.”

Ravi Anand, MD of ThinCats, a leading alternative finance provider of funding to mid-sized SMEs said: “Although we are seeing increasing interest from business owners and their advisers about funding EOT transactions, this report puts some real numbers behind the size of the opportunity and the potential challenges, including relatively low levels of understanding. “These findings not only highlight the genuine social and economic benefits offered by employee ownership, but also the need for much more information and support for business owners and their employees on how to make the transition to an EO model.”

JGadd Associates, which has partnered with another EOA member Telos Partners, believes there is enough insight and support for SMEs to navigate becoming employee owned and that it is getting them to plan for succession that is the imperative. In their joint article The Road to Succession, Telos and JGadd offer tips from experienced hands that focus on the leadership succession aspect of an EO transition, offering insights and advice gathered from those who have navigated the intricacies of leadership succession in EOBs.