Businesses change. Family businesses become companies. Companies become PLCs. PLCs become private companies again. As business circumstances change so the legal structure of the business changes. For many small businesses the greatest change may be the retirement or leaving of the owner, largest shareholder, or the founder of the business (who may be one and the same person). In this situation the whole future of the business may be threatened. In fact figures show that three-quarters of family businesses do not make it into the third generation.
Larger firms also may review their portfolio of businesses and find that a particular business no longer fits in with the “Core Business,” or the rate of return on capital is now below the group target. In these cases the owners may close businesses that are actually still profitable.
A business closure results in great waste. Employees lose their jobs, often jobs they have held for many years. Suppliers lose a valued customer. Customers lose a reliable supplier. Landlords may lose the only tenant suitable for their building. Governments and local authorities lose tax and business rate income. Very often the owner is unable to realise the full value of the business and loses most of their investment by being unable to sell as a going concern. In most situations like these, many people would be better off if the business could continue. These are sometimes called the stakeholders of the business.
In recent years there has been increasing interest in employee-owned businesses. These are businesses owned and controlled by the people who work in them, primarily to provide their own employment. For many people in the nineteen-eighties setting-up an employee-owned business was the only way of getting a job.
Employee ownership succession is the means by which employees take over the running of businesses that would otherwise close down. This enables the employees not only to protect their jobs, but to gain new skills, new experiences, and sometimes a return on investment too. Employees are a natural choice to run a business because they are usually the ones with the largest stake in the business, particularly in times and in areas of high unemployment. However the other stakeholders also benefit from the continuance of the business.
Succession is an option that can be profitably considered by the following
Succession must be planned confidentially. Very often the merest rumour of change can be very destabilising. Key employees leave, key customers and suppliers look around for alternatives, share prices fall, lenders and bankers panic. At Succession we fully understand these issues and are well practised at maintaining confidentiality and even working to a cover story!
Initial meetings can take place anywhere. For the reasons outlined above we are able to meet at our offices, on the premises of the business, or at some other convenient location. Although usually the initiative comes from the owners we are happy to meet employees and Trades Union representatives and business advisors and make a presentation to the owners on their behalf.
The service comprises all the elements necessary for a business transfer to employees to take place. We have consultants experienced in the particular management needs of employee-owned businesses; solicitors skilled in developing tax-efficient employee-ownership schemes; accountants able to raise finance relevant to employee ownership such as bonds and debentures, and specialist funding organisations. N.B. We are always willing to consider extending our pool if firms or individuals can demonstrate that they have the required expertise.
The Succession process must first of all establish the viability of the business. Succession is not a magic wand which can turn a failing business around, although sometimes employees may require a lower return on capital as their main benefit comes through continued employment. However although the targets and aims of the business may change we still need to be assured that they can be met. We do not want to set people up to fail. The first step is therefore a series of discussions about and analysis of the future of the business.
Following this we will make an assessment of the succession options. This assessment will be carried out as a desk-based study but will also usually involve visits to premises and interviews with employees. At the end of the assessment we will produce a confidential report on the options. These may include a co-operative structure, an employee-owned structure, an employee participation scheme or some other outcome. If the best option appears to be a trade sale we will say so.
If the recommendation is accepted then we will move onto the transfer stage. For some options we will signpost you to an agency best placed to assist. Where the recommended option is a co-operative or employee-buyout then we will continue to work with the client. The next step is normally to discuss the position with the employees, to inform them of the options and enable them to reach an informed decision on whether to accept the transfer of the business to them.
If the employees do not wish to accept the transfer of the business then succession cannot take place. However where they do Succession will begin working with them on the development programme, which includes