Background

The  generation change reached SMEs: More jobs are lost as part of failed  transfers than newly created with start-ups !

1. The backbone of innovative regions are innovative SMEs. While several initiatives exist to promote innovative start-ups and incubators only very few measures focus on the further support and continuation of existing companies. Many SMEs face a crucial moment when the business gets transferred, e.g. due to retirement of the previous owner. In fact, more jobs are lost due to failed business transfers, than new jobs are created in start-ups every year.

Over the next decade up to 500,000 businesses providing 2 million jobs will have to be transferred every year and at least 1/3 of business failures are the consequence of bad transfers.  Against this backdrop it is essential to improve the conditions for business transfers.

This holds especially true for the eastern member states of the European Union. In Poland, Lithuania, Latvia and Estonia most companies have been started in the early 1990s. The owners must transfer their businesses in the next years and they as well as other actors such as business organisations have hardly any experience with business transfers.

SMEs are a very heterogeneous group. There is not one solution for all, but a toolset including most promising methods for all categories of SMEs will be developed and put to the test.

2 SMEs have difficulties when facing a business transfer due to the lack of:

a. time and suitable successor
SMEs usually have a planning horizon of 3-6 months ahead, but a business transfer needs to be planned earlier, at least 12–36 months are needed for a successful shift. Lack of preparation of business transfers leads to difficulties in finding a suitable successor, securing necessary funds as well as reorganizing the company. It is the intention of this project to prevent this negative cycle from happening by proposing and implementing concrete measures on a grass root level.

b. financing
Often, the leaving owner has non-realistic expectations regarding the value of his enterprise, with an expected buy-out price 150 – 200 % above real value. A true, market-oriented valuation by a third party is needed. Likewise, successors need support to finance the take-over.

c. know-how
1. There is a lack of expertise in many business support organisations regarding innovative models for transfer and its planning, especially in eastern countries.
2. Employees or externals interested to take over the company lack knowledge how to actually run it. They might be experienced employees with a lot of expertise regarding the product or service of a company, but no entrepreneurs.
3. Lack of understanding regarding the transfer and retention of relevant organisation knowledge needed to keep the company going.