Fewer than half Britain’s SMEs have succession plans in place

According to new research commissioned by tax, accountancy and business advisers Vantis, less than half Britainís small and mediumñsized organisations has a plan in place to ensure itís business as usual if a founding member or key director steps down. This research, carried out by Henley Management College among 110 SMEs, warns of major potential problems. According to Professor David Birchall of Henley Management College, ëíA third of the businesses we spoke to predict a significant increase in turnover over the next five years, yet theyíre failing to safeguard their longer term future by not putting in place people who can continue to drive the companyís success.íí

According to the DTI, there were almost 4.3 million business enterprises in the UK at the start of 2005, an increase of 59,000 since the start of 2004. Yet many of these businesses may face an uncertain future if the founding entrepreneurs donít make sustained efforts to replace them. Difficulties that SMEís face in recruiting potential executives compared to larger companies could explain in part why so few companies have put succession plans in place. Over a third of those questioned said they found it difficult to find the right people with 25% saying the impact was delayed business growth.

While British business generally prides itself on entrepreneurship, the research also revealed that the methods used to develop future leaders and managers are somewhat outdated. A fifth of companies used external training and internal mentoring to develop key staff but only 1% of those companies which did have a succession plan in place, encouraged employees to seek short-term experience outside the business.

Further interesting facts revealed by the research were that:

- 22% of businesses with a business plan in place plan to keep their firm in the family;

- 32% of business with no succession plan envision selling to a third party;

- Companies without a plan are more likely to think succession planning should cover all levels of management than those with a plan (88% vs. 54%);

- Almost a quarter of companies (24%) uses specialist recruitment agencies to find new business leaders while 19% rely on word of mouth; 30% promote senior staff from within;

- Only 2% of companies favoured assessment centres when it came to evaluating potential succession candidates. Most relied on annual reviews (39% of those with a succession plan and 31% without) and interviews (25% and 31% respectively);

- The time horizon for half the succession plans was 3-5 years; 47% of companies had named successors for key positions, while 60% expected to recruit to strengthen their board of directors;

- 40% of leaders exiting a business expected to work in tandem with the new people at the helm for a period of time, and almost a quarter planned to maintain some direct involvement until they felt confident enough to hand over fully. Only 9% thought they would make a swift and total transfer;

- 70% of companies regarded their succession plans as effective, with 72% claiming to feel well prepared for the future.

According to Nick Winters, client partner at Vantis, ìThe research clearly highlights the need for businesses to think about exit and succession plans from the outset. If today’s business leaders fail to recruit, nurture and train managers for the future, there is a risk of damage to British business and entrepreneurship that will have far-reaching implications.’’

Full details of the research are available by contacting Nick Winters at Vantis on 020 7467 4000