Why many business owners are now considering employee ownership
Recent years have seen considerable success in employee owned businesses. The benefits of employee ownership are for many business owners the perfect answer to all of their succession and exit planning dreams.
The amount of employee owned businesses is growing in the UK, with John Lewis Partnership and Wilkin and Sons, the makers of Tiptree Preserves, being two of the most well-known examples.
An attractive alternative
An employee buyout (EBO) is a little different from a management buyout (MBO). As the name suggests, in an EBO a business is being bought by most or all the employees (often by way of an Employee Ownership Trust) – and not just the leadership team as would happen in an MBO. This is a great way forward for some companies, and with a combination of bank funding and deferred payments, structuring an EBO can turn from a dream into a reality.
Of course, business owners don’t have to hand over all of the business at once. Many choose to stay actively invested and involved or to be on hand to mentor the employee representatives that step up to run the business.
Benefits for both business and employees
A government report (the Nuttall review) highlighted that giving employees a meaningful stake in the business they work for can help companies to be more successful. For employees, greater involvement in management decisions means a greater sense of achievement and improved personal well-being, resulting in 80% of them being willing to recommend their business as a place to work.
Research by the Employee Ownership Association has shown that employee owners deliver significant commercial benefits for businesses. These include greater employee engagement and retention, sustained innovation, increased productivity and an average year-on-year growth of 4.6%. Employee owned businesses also tend to be more profitable and ride out market downturns more easily because they are able to think and plan for the long-term.
Employee ownership also provides investment in the business from people working for the business, reducing the impact of external shareholders who may want a quick return on their funds – to the detriment of the businesses’ ongoing success.
Great tax incentives
The government has encouraged employee ownership by providing some exceptional tax breaks for the current shareholders. Many business owners know that if they sell their business they will enjoy a favourable tax rate on the proceeds, which can see them paying just 10% taxation on the gain. However, if a business is sold to its employees then the entire gain would be free of tax. The new tax breaks also extend into payment of certain bonuses to employees.
A massive 55% of businesses are reporting better financial performance following a transfer to employee ownership.
WMT are proud to be one of the first supporting members of the Employee Ownership Association. For more information on employee ownership or to see how WMT could help contact Andrew Williamson