Professional Documents
Culture Documents
Succession Planning: Hot Topic Spotlight 10
Succession Planning: Hot Topic Spotlight 10
3. Annex - Statistics
Introduction
This Hot Topic Spotlight is based upon findings from the South East Business Monitor - a quarterly survey of businesses based in the South East, conducted by the regions Business Link Providers (BLPs). The Business Monitor has the following key objectives: 1. To identify business issues and concerns 2. To monitor business intentions and future growth expectations 3. To explore attitudes towards and experiences of using external business support and advice 4. To establish whether any gaps exist in current support provision Every three months, at least 1,200 telephone interviews are conducted with business owners and senior decision makers of small and medium-sized enterprises (SMEs), based in the South East. This allows an ongoing temperature check of business issues and concerns. The survey results are weighted to reflect the size and structure of the Regions SME population. The questionnaire consists of a set of fixed core questions, and additional hot topic questions that change from wave to wave. Succession planning was covered in Wave 5 of the South East Business Monitor, the fieldwork for which took place in November 2006. The findings from the hot topic questions are published in a series of Hot Topic Spotlights, freely available upon request. Hot Topic Spotlights currently available are (as at January 2007): 1. 2. 3. 4. 5. Business start-ups Fuel, energy and water costs 2012 Olympics Red tape and SMEs Womens enterprise 6. 7. 8. 9. 10. Home-based SMEs Sustainability Work-related stress Access to finance Succession planning
To request a Hot Topic Spotlight, or if you have any enquiries about this research, please email Stuart Cole at Business Link, Stuart.Cole@businesslinkkent.co.uk.
This Hot Topic Spotlight was prepared for the South East Business Link Providers by Step Ahead Research. The views expressed within it are the views of the authors, and do not necessarily reflect those of Business Link.
Copyright WSX Enterprise Ltd 2007. The information contained in this paper may be quoted, provided the following is acknowledged as the source: South East Business Monitor, a quarterly survey of business owners, conducted by the Regions Business Link Providers.
Key messages
29% of owner managers currently have no plans relating to what they will do with their business on retirement. However, 7% intend to close the business. Owners aged 65 or over are the most likely to anticipate closure of their business in the next 5 years (35% compared with less than 11% for other age groups). However, they are among the least likely to anticipate a transfer of ownership. In all other age groups, anticipation of transfer of ownership is more common than anticipation of closure and the difference is particularly significant for the 55-64 and 45-54 age groups. These findings suggest a need to target support for succession planning towards these age groups. Over half (56%) of owner managers have a clear financial plan in place for their own retirement. However, 50% are unaware whether their business has a clear succession strategy for shareholding staff that leave or retire and 31% currently do not have one in place. Only 17% of owner managers believe that they need external help with succession planning but national research suggests that two thirds (68%) of SMEs do not know what succession planning is.
Background
Succession plans or exit strategies are plans that small and medium-sized enterprises (SMEs) put in place to help with a successful transfer of ownership when an owner wishes to retire or leave the business. According to the Small Business Service report Passing the baton encouraging successful business transfers1 very few businesses have an explicit succession plan in place. The report suggests that to maximise the chances of a successful transition period the owner and the successor need to have similar values and have mutual trust and respect for each other. The owner must also be prepared to let go of the business and also cooperate and delegate to their successor. A long and well-planned handover process is also recommended. Transfer of ownership also occurs within family-owned businesses and often transfer to another family member is the preferred scenario. However, the report found that family members are becoming less interested in taking over the family business or that they lack the skills to do so. A recent Financial Times report suggests that many family-owned SMEs do not survive beyond the second or third generation due to a lack of management skills.2 Passing the baton also suggests that one third of SME owners in the UK are vulnerable to age-related transfer failure and that this number is increasing. A key message of the report
1 2
Passing the baton encouraging successful business transfers, Evidence and key stakeholder opinion, Small Business Service, 2004. Family-run businesses perform poorly Financial Times, 15/03/2006.
Source: SE Business Monitor (November 2006). Base: All respondents who owned or had a stake in the business = 1,152.
As shown in Figure 2 overleaf, owner managers aged 65 and over were the most likely to anticipate the closure of their business in the next 5 years (35% compared with 11% or less in other age groups). Interestingly, the oldest owners are among the least likely to anticipate a full transfer of ownership of their business.
These individuals are termed owner managers in this report as they both manage a business and have an ownership interest. This term should not be confused with the term owner managed used in the Business Link segmentation model, which refers only to business owners who manage their business alone. 4 Calculation based on ONS ABI 2004 which suggests there are 332,500 SMEs in the South East (Businesses with 1-299 employees excluding public sector establishments).
Source: SE Business Monitor (November 2006). Base: All respondents who owned or had a stake in the business = 1,152. 2534 = 83, 35-44 = 283, 45-54 = 395, 55-64 = 302 and 65 or older = 78. The 17 or younger and 18-24 age categories have been removed due to small sample sizes. Refused responses are not shown.
The distribution shown in Figure 2 suggests that if owner managers have not arranged for the transfer of ownership of their business before they reach 65, they are more likely to close their business on retirement. This suggests a strong link between business closure and a lack of forward planning. The number of business closures could possibly be reduced with external advice or support on succession planning delivered to owner managers in younger age groups. Over half (56%) of owner managers have a clear financial plan in place for their own retirement (see Figure 3). However, 50% did not know if their business has a clear succession strategy for shareholding staff that leave or retire and 31% report that they definitely do not have one in place. The results of the South East Business Monitor suggest that SMEs with more than one manager are more likely to have a succession strategy than those that are run by a single owner manager acting alone (24% compared with 7%). This makes sense as there will be a greater need for a formal strategy to communicate what will happen to the business if a greater number of managers are involved. There is also a link between the likelihood that a business will have a succession strategy and use of other business planning tools. Of owner managers with a business plan in place, 19% had a clear succession strategy. This was true of 22% of those with a sales and marketing plan and 23% of those with a training plan. Over one third (38%) of owner managers suggested that the value of the business will form a significant part of their retirement fund. Owner managers of businesses with a turnover of between 58k - 34m were significantly more likely to agree that the value of the business would contribute to their retirement fund than those with a turnover of less than 58k and over 34m (44% compared with 28% and 13% respectively). Only 16% of owners believe that they need external help with succession planning. If these figures are reflected across all SMEs in the South East, this could equate to around 53,200
Don't Know 6 50 11 17
Source: SE Business Monitor (November 2006). Source: SE Business Monitor (November 2006). Base: All respondents who owned or had a stake in the business = 1,152.
Conclusion
The information outlined in this Hot Topics Spotlight paper suggests a need to encourage more business owners to think about what will happen to their business on their retirement. Targeting the 55-64 and 45-54 age groups will be particularly important, with these individuals the most likely to be considering transferring the ownership of their business in the next 5 years. By age 65, business owners are much more likely to be considering closure of the business rather than transfer. Business closure due to a lack of forward planning represents a loss for the South East economy which could be avoided by increasing awareness of the concept of succession planning and its benefits. This message needs to reach younger business owners to allow them sufficient time to consider all the available options and make an informed decision.
Calculation based on ONS ABI 2004 which suggests there are 332,500 SMEs in the South East (Businesses with 1-299 employees excluding public sector establishments). 6 Lifting the Barriers to Growth in UK Small Businesses 2006, Executive Summary for the South East, Federation of Small Businesses 2006. 7 http://www.businesslink.gov.uk/successionplanning Accessed 18/12/06.
Hot Topic Spotlight 10: Succession planning Annex: Succession planning - Statistics
This Annex sets out four figures which provide more detailed analysis of succession planning, based on the South East Business Monitor. It should be noted that in some cases these figures are based on a small number of responses and care should be taken in interpreting the results.
Source: SE Business Monitor (November 2006). Base: All respondents who owned or had a stake in the business = 1,152. Berkshire = 105, Hants & IoW = 118, Kent = 311, MKOB = 137, Surrey = 126 and Sussex = 355, MKOB = Milton Keynes, Oxfordshire and Buckinghamshire. IOW = Isle of Wight. Note: Berks = Berkshire, Hants & IOW = Hampshire and the Isle of Wight, MKOB = Milton Keynes, Oxfordshire and Buckinghamshire
0 4
15 17
10
12
14
16
18
Figure A3: Owner managers who agree with statements below by broad industry (%)
Retail/ Tourism/ Other Manufacturing All industries Construction Land-Based Transport/ Distribution 73 19 45 25 Transport /Distribution 13 26 47 57
Source: SE Business Monitor (November 2006). Base: All respondents who owned or had a stake in the business = 1,146. Land based = 125, manufacturing = 211, construction = 150, retail, tourism & other = 215, business & financial services = 358 and transport & distribution = 87.
"I have a clear financial plan for my own retirement" "My business has a clear succession strategy for shareholding staff who leave or retire" "The value of my business will form a significant part of my retirement fund" "We could do with some extra help with succession planning"
56
67
51
55
54
14
22
16
11
38
50
38
35
45
17
13
23
19
17
Figure A4: Owner managers who disagree with statements below by broad industry (%)
Retail/ Tourism/ Other Manufacturing All industries Construction Land-Based
"I have a clear financial plan for my own retirement" "My business has a clear succession strategy for shareholding staff who leave or retire" "The value of my business will form a significant part of my retirement fund" "We could do with some extra help with succession planning"
30
22
34
33
31
31
22
32
32
32
45
30
46
57
36
60
75
55
56
60
Source: SE Business Monitor (November 2006). Base: All respondents who owned or had a stake in the business = 1,146. Land based = 125, manufacturing = 211, construction = 150, retail, tourism & other = 215, business & financial services = 358 and transport & distribution = 87.