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2nd April 2024

An update from Azets: Gap in succession planning among UK businesses

The Azets Barometer survey, which gathered feedback from businesses across the UK, Ireland and the Nordics, has revealed that fewer than one in ten UK businesses have succession planning fully integrated into their strategy, despite 30% of companies demonstrating a widespread recognition of its importance.

The research also showed that more than half (58%) of businesses have considered succession in their strategic planning, with almost a third (30%) scoring 8 or above out of 10 when asked how much thought their organisation is giving to succession planning (0=no thought at all; 10 = fully integrated).

However, just 9% of businesses have succession plans fully integrated, while 6% have given it no thought at all.

Succession should be high up on the agenda of every business owner, particularly in the current economic climate. Meticulous planning that is fully embedded into your business strategy ensures future proofing and strategic continuity. It’s imperative that business owners think about their options and take control of their exit route, before it becomes forced.

Having a succession plan built into the business strategy ensures you are prepared to realise the business’ full potential and maximise shareholder value.

Some of the available options, but not an exhaustive list, include:

• Enterprise Management Incentives (EMIs)

• Management Buyouts (MBOs)

• Employee Ownership Trusts (EOTs)

• Trade sales

Enterprise Management Incentives (EMIs)

Staff retention and incentivisation has become a top priority for employers as a result of more agile working, rising wage costs and inflation. These factors have driven the need to hold onto talented staff. This can be a more acute problem at senior levels where employers require experienced and highly qualified employees, but the pool to draw from seems to have shrunk after the pandemic.

EMIs allow employees (usually, key employees) to have the opportunity to acquire shares through the granting and subsequent exercising of a qualifying share option.

Management Buyouts (MBOs)

A common route for exiting a business is through a management buyout (MBO). Essentially, this is where the existing senior management team acquires the business. There are a number of ways in which an MBO could be funded, including via third-party lending, management equity, deferred consideration and private equity.

An MBO can be a very effective way for an owner to hand over the reins of the business to a trusted management team whilst simultaneously ensuring that they receive a fair price for the business.

Employee Ownership Trusts (EOTs)

EOTs were brought in by the government in September 2014 with the aim of encouraging ownership structures in which all employees have a stake in the business. Whilst there are generous tax breaks available for owners who sell their shares to an EOT, there are a series of rules which must be followed for the EOT to be valid (unlike an MBO).

Trade sales

Trade sales often take place between businesses in the same industry, with buyers typically seeking greater economies of scale, a diversification in their core product offering or an extension to their customer base.

We are here to help

For further information or if you have any questions in relation to succession planning please get in touch.

Lyn Newbury