How do you make your business stronger and more sustainable? It’s a question that keeps many business owners awake at night, and for a growing number of them, the answer is employee ownership.
Nicholas Howie explains the benefits and shares examples of businesses that he has assisted with the transition.
Among the companies Lindsays has recently helped to take this route are a traffic management company, an engineering consultancy, a bingo chain, a childcare provider and an art gallery, illustrating the point that employee ownership can work across a huge range of sectors and business types.
Why do it?
Employee ownership is commonly used as a long-term exit strategy, but it’s also seen as a strategy to improve performance. Recent research by the Employee Ownership Association (1) found that Employee Owned Businesses (EOBs) were 8-12% more productive than non-EOBs – perhaps because more than four out of five said that employee motivation had increased since they had adopted the EOB model.
For the owner, it’s an opportunity to phase their exit step by step and keep it tax-efficient as well. If they sell more than 50% of a company’s shares to employees, they can qualify for capital gains tax relief, as long as certain conditions are met.
It’s also possible for staff in an EOB to receive an annual bonus of up to £3,600 per employee, paid free of income tax.
Green light from Apex
One company that recently took the employee ownership route is Apex Traffic Management, which provides traffic management for motorway projects and events, including meetings at Hamilton and Ayr Racecourses, the Great Scottish Run and last year’s British Open in Troon. In fact, you may well have encountered its traffic lights and signage when driving around Scotland or elsewhere in the UK!
After building up their company over 20 years, its three directors were thinking about their long-term exit strategy, but didn’t want to sell to a competitor. “We had two or three other companies come in to try to buy us, but the offers on the table just didn’t feel right,” says director Iain Griffin.
They decided to explore other options and heard about Employee Ownership Trusts (EOTs), where the shares in the business are owned collectively through a trust, and the trustees exercise control of the business for the benefit of its employees.
“The more we looked into that, the more we felt this was the route to go down,” continues Iain Griffin. “It gives us a long-term exit strategy and ensures we have something in place which leaves a legacy.
“More importantly, though, it’s a way of recognising our team’s hard work and the part they have played in getting the business to where it is. It gives them a direct stake in Apex.”
Butler builds for the future
Another Scottish firm recently transitioning to employee ownership with legal advice from Lindsays, is Glasgow-based engineering consultancy Butler Consulting, which anticipates the move will help it recruit new talent into the business.
“Becoming an EOT has allowed us to strengthen the management team whilst making the business more resilient,” says Butler Consulting founder Robert Butler.
”Completing this has re-energised me personally and I intend to remain involved for several years to come. Transforming to an EOT allows me to do this whilst allowing others to thrive and develop their careers.
“The EOT model is a perfect fit for a business like ours to continue to develop whilst allowing all to contribute and share in the success that they help create.”
Making it work
Reaping all the potential productivity, resilience and recruitment benefits of employee ownership is certainly not a quick fix.
Regardless of sector or company size, there’s a list of specialist legal, financial and management issues to consider, ranging from the ownership structure used to tax planning to the views of employees. But on all of these issues and others, there is plenty of support available.
1. The Robust Growth Champions report by ThinCats in partnership with the EOA and Ownership at Work.
