Compendium 2.4.2 Transfer

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EQUAL COMPENDIUM ON INCLUSIVE ENTREPRENEURSHIP

2.4.2 Transfer of existing businesses

Contents

The challenge

When a viable small business closes because its owner cannot find a successor, it rarely hits the headlines. But thousands of economically sound companies in Europe disappear every year because the collective factors involved in the operation are so huge. According to a recent EU report around one-third of EU entrepreneurs will retire from the labour market in the next 10 years, including significant numbers of those running family enterprises. This will affect some 690,000 companies and 2.8 million jobs every year.

Yet experience shows that the chance of survival of a business that is transferred in whole or in part to a new entrepreneur is higher than that of a totally new start-up. This led the Enterprise DG to regard “facilitating the transfer of existing business” as a priority in its 2004 Entrepreneurship Action Plan.

However, transferring ownership of a small company, especially if this goes outside the family, can be a fraught business. Unexpected obstacles may lead to lengthy delays and frequently the absence of advice or access to finance can scupper the whole project with detrimental effects on jobs and the local economy. Moreover, for many owners letting go of the reins may be a difficult, even traumatic, experience and the decision to transfer may be taken too late or be forced due to a crisis such as ill health. Changing ownership of a company involves far more than simply signing on the dotted line of a legal document. Both outgoing and incoming proprietors need to be aware of the many issues involved and help to address them.

How EQUAL has approached the issue – examples

A number of projects took up this issue in the latter part of the EQUAL programme. One of their distinctive contributions was to try to link the retirement of older managers and owners with specific target groups – most obviously young people but also women.

For example, the Maillâges ("Link-ages") project in France actively sought older entrepreneurs who may have needed a successor to take over their company. Taking into account the increasing number of young people finishing education and considering enterprise creation as an alternative to unemployment, Maillâges identified younger people with the skills or potential to run the business and encouraged a partnership between the two. The aim was for the young potential entrepreneur to become sufficiently trained and confident to take over the running of the business.

Once the pair had been put in contact they would work together for six months, defining roles and responsibilities. After this phase, both would take on the collective management of the co-operative. CGSCOP, France's General Confederation of Worker Co-operatives, was there to support the entrepreneur couple during the first year. The training and experience gained in this relatively safe and protected environment proved successful in preparing a number of young entrepreneurs to manage a co-operative alone once the older person decided to retire. It is estimated that the Maillâges project benefited over 900 retiring and young entrepreneurs.

The PACEREL project in Lyon, France, also aimed to foster economic development and higher employment rates by facilitating the creation, survival and transfer of business. As well as offering business support, round table discussions and the dissemination of good practice, this EQUAL project promoted business transfer as the second of six priority axes designed to increase business creation and survival rates. Promoting women entrepreneurship was a cross-cutting theme in all PACEREL’s actions, and particular emphasis was also given to the young and the socially excluded.

PACEREL’s axis on business transfer focused on examining the profiles of business owners and entrepreneurs due to retire and those of potential successor entrepreneurs before proposing partnerships and offering support. It especially aimed to facilitate business transfer for craft and low tech companies which were of particular importance for the local economy and yet which often prove difficult to transfer without such assistance. The project results point to 1,000 young people and 2,000 women who benefited from PACEREL’s support.

Uptake beyond EQUAL

Such initiatives for facilitating business transfer from older entrepreneurs to young, potential entrepreneurs have been rolled out broadly in France including an interregional programme in southern France bringing together Aquitaine, Midi-Pyrénées, Languedoc-Roussillon and Provence-Alpes-Côte d'Azur with the aim of facilitating and supporting business transfer in the crafts, trade, hotels and catering sectors. Put in place by the Chambers of Commerce and Industry and the regional Chambers of Crafts and Trades, this programme entitled «Reprendre, c'est Entreprendre» has some one hundred people working in the business advice services of these four regions offering regular and continuous services in 24 town centres.

Brittany’s Chambers of Commerce and Industry also developed a policy of business transfer through entrepreneurial couples. The Reprendre en Bretagne service offered involves free consultation of adverts by Breton companies wishing to be transferred, classified by sector and location. It allows users to get in touch with the retiring entrepreneur or his/her representative and potential entrepreneurs to upload their profiles to give exposure to candidates and their projects.

Transnational co-operation

Other projects have taken this approach to a transnational level whereby good practice can be shared and adapted to the situation of different counties. The EQUAL projects IMERA in France and NISIA in Italy did just that. By collaborating on a common issue, that of business transfer, they were able take advantage of a wider range of approaches, knowledge and tools.

Other conditions for facilitating business transfer

Direct business transfer support has proved effective in a number of areas in Europe. However, there is still a long way to go in improving the overall conditions which can affect business transfer. This was recognised by the Enterprise DG in its 2006 Communication Implementing the Lisbon Community Programme for Growth and Jobs: Transfer of Business – Continuity through a new Beginning. The text calls upon Member States to improve framework conditions for business transfers by ensuring that tax systems are transfer-friendly, providing adequate financial conditions, by raising awareness for the need for a timely preparation and by organising transparent markets for business transfers.

Recommendations for mainstreaming policies

EQUAL projects have addressed the need to raise awareness and have provided relevant support. The recommendations below include lessons learnt through these projects as well as further recommendations from the Enterprise DG and experts in the field.

  • Campaigns to make owners aware of the benefits of an orderly transfer, and offer advice and counselling. One possibility might be to follow the example of Austria and the Netherlands. In both countries, business proprietors are contacted individually when they reach a certain age to help prepare them for a possible handover.
  • Support to both outgoing and incoming proprietors who need to be aware of the many issues involved and how to address them.
  • However, it is would-be owners who face most problems. A major one is finance. Transferring a company is generally more costly than setting one up. Funds have to be found not just to purchase material and assets, but also items ranging from customer goodwill to potential future earnings.
  • Start-up facilities, loans and guarantees should be available not only for establishing new businesses, but also for taking over an established one. Examples include: low-interest loans, as in Belgium and Luxembourg; loan guarantees to decrease the risk premium, as in Denmark, France and Austria; and tax relief for investments, including business transfers, as in Ireland.
  • Taxation is another financial consideration. The Commission would like to see wider use of partial income tax exemptions when owners sell their business, especially if the money is used to invest in another company or to prepare for retirement. France and Ireland already offer tax exemptions; Belgium, Germany and Austria provide for reduced tax rates; and the United Kingdom tapers tax relief.
  • Injecting greater transparency into the business transfer market to promote better match-making between potential buyers and sellers. This could be achieved through databases for businesses up for sale, impartial support services and comprehensive mediation facilities that act as honest brokers between both parties. Chambers of commerce are already active in this area in Germany, France, Italy, Luxembourg, the Netherlands and Austria.

Links to EQUAL case studies

Other useful links


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