Smooth transfer of businesses
For budding entrepreneurs, it is often forgotten that starting a new firm is not the only way to go into business. Every year, thousands of existing small businesses close down, as their owners retire or seek new challenges, but cannot find anybody to take on the firm. Ensuring a smooth handover is a long and sometimes complex process, but making it simpler would reduce much of the 'waste' - of skills, jobs, market presence and goodwill - when such a business closes down.
Preparing for a business transfer can take several years of preparation, but many owners face a psychological hurdle when it comes to selling off the family firm. If no obvious successor is present, too many put off the preparations, beginning the transfer of know-how and skills too late, or not at all. This may not only reduce the value of the business to the outgoing owner, but also jeopardise the plans of the buyer or successor. And with an estimated 450,000 businesses, providing 2 million jobs, being transferred in the EU every year, Europe needs to make it easier to transfer businesses and develop more effective support services.
2011 Commission study on "Business Dynamics": measuring the impact of non-efficient transfer of businesses on job creation and business births in Europe
The study “Business Dynamics: Start-ups, Business Transfers and Bankruptcy” analyses the macro-economic impact of start-up, business transfer and bankruptcy legal and administrative procedures on entrepreneurship in Europe. Its aim is to identify the main problems faced by entrepreneurs along key instances of the business life of a company: start-up/licensing procedures, transfer of business, bankruptcy and second chance. Moreover, the study explores potential solutions and proposes policies that may be recommended to increase the ease of doing business and eventually the number of entrepreneurs in Europe.
The study covers the current national practices in 33 European countries affecting key moments of a company's life cycle: licensing, transfer, insolvency and re-birth with the final goal of analysing what are the key problems in each of these areas and their impact in terms of companies, jobs or GDP loss.
|In relation to transfers of business, the study concludes that Europe is loosing approximately 150,000 firms representing 600,000 jobs a year due exclusively to inefficiencies in business transfers.|
The study is available here [4 MB]
The European Commission is aware of the challenges and has undertaken several projects over the past decade to tackle them. The major aim of these initiatives was to raise awareness among policy-makers and other stakeholders in Member States of the pitfalls of being ill-prepared for the large number of retiring entrepreneurs, and to organise means by which good practices and expertise can be shared. Given that much of the regulatory framework (taxes, company law, etc.) which affects this issue falls under the responsibility of Member States, national action is essential.
Despite some progress, Member States have not yet implemented the 1994 Commission recommendations: out of the 33 European countries considered in the "Business Dynamics" study only 5 had implemented more than 75% of those recommendations.
Some of the obstacles still to be addressed include the complexity of the business transfer process and the potential lack of experience - and knowledge of support available - of the new owner. This is compounded by legislation and regulation which frighten many would-be entrepreneurs who could take over existing businesses. This affects mostly small companies as bigger companies can usually rely on the advice of internal legal staff or external experts familiar with the relevant legislation and challenges ahead. Owners of small and medium-sized enterprises are less aware of business transfer issues.
Given these firms importance as a source of employment in Europe, solving these problems is essential. The Commission is particularly asking Member States to review tax systems and to organise transparent markets for business transfer.