120,000 SME owners predicted to sell. Could EOTs be the right path? 

On 21 November 2023, think tank Ownership at Work published new research which shows how many business owners they predict will be looking to sell, divest or liquidate their shareholding over the next 10 years.  

Many of these businesses will need alternative routes to sell and Employee Ownership Trusts (EOTs) could be the right route for them considering the tax savings and employee satisfaction and productivity benefits. 

The report, Generation EO: The Great Succession Opportunity, sets out how 40% of older business owners who intend to sell their stakes in small and medium businesses (with 10-249 employees) predict the risk of closure without the right buyer. 

The research uncovered: 

• 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) 

This research, conducted in partnership with DJS Research and backed by the Federation of Small Businesses (FSB), highlights that a significant proportion of UK businesses, estimated at 8% (equivalent to 120,000 businesses) with 10 to 249 employees, face potential ownership changes in the upcoming decade. This conclusion stems from a comprehensive survey involving 500 SME business owners aged 43 and above. 

Researchers have suggested that if the UK continues to increase the number of employee-owned businesses as it did in 2022-23 (at a rate of 37% growth), it could lead to significant economic benefits. In five years, having over 6,800 of these companies, which are shown to be 8-12% more productive than non-employee-owned firms, could boost the country's annual economic productivity by around £60 billion. This growth would involve approximately 33,000 ownership sales over the next 10 years, greatly supporting the long-term sustainability of many businesses. 

What are the benefits of selling your business through an employee ownership trust? 

Businesses operating under EOTs exhibit greater financial resilience compared to those without. Studies indicate that employee-owned businesses experienced lower profit declines in the past five years than non-employee-owned counterparts, with figures standing at 14% versus 25%. This resilience persisted even through challenging times such as the COVID-19 pandemic and supply chain crises. For business owners who view their enterprises as legacies, the heightened financial resilience and safeguarding of that legacy serve as compelling motivations to transition to employee ownership. 

For more information on the benefits of selling your business to an Employee Ownership Trust, read our article Five reasons to sell your business to an Employee Ownership Trust. 

Head of Employee Share Schemes, Samantha Lenox, says: 

Selling to an employee ownership trust provides a means for business owners to safeguard their legacy, boost business growth and create alignment between employees and owners. We’ll certainly see a surge in business owners selling to EOTs in 2024 which is reflected in the research. It’s worth noting that the government is actively reviewing the employee ownership trust, indicating potential changes in the future that could bring additional benefits and ease the transition process. Employee ownership overall is good for productivity and growing the economy, good for employees and good for communities.

How can I sell my business through an employee ownership trust? 

If you’re thinking about selling your business to an employee ownership trust, or would like to seek advice on EOTs, consult our specialist EOT solicitors, who will be able to answer any questions you may have. Get in touch via 0808 175 2193, email us at enquiries@harperjames.co.uk, or complete the short form below with your enquiry.