What is employee ownership? Some frequently asked questions
Employee ownership can safeguard continuity, offer long term sustainability, ensure a gradual transfer and realise the owners equity.
Employee buy-outs alleviate many of the risks of business succession and avoid many of the defects of alternative exit routes such as IPO’s and trade sales. Employee ownership can achieve some of the key goals of effective succession plans.
What is employee ownership?
Employee ownership is a form of business ownership where the employees hold a controlling share in a business either through direct share ownership, indirect ownership (through a trust or other vehicle) or through a combination of these approaches.
Will I get the same value for selling my business to my employees?
The buy-out process should establish a fair and equitable value for your business through a diligence process similar to that an external purchaser would look to go through. Ultimately, a business sale is determined by whether or not a sellers needs and a buyers willingness or ability to pay can be matched. It may be possible to get a higher price from an external sale, but a sale to the employees will ensure a fair price, business continuity and a chance for the employees to grow the business in future years.
How stable are employee owned businesses?
Very. Recent Employee Ownership Association statistics suggest that productivity, profit and sales have all increased across UK employee owned businesses in the last year. Employee owned businesses have performed better than comparable SMEs and have proven themselves more resilient over the financial downturn.
Why would my employees want to run the business?
There are many reasons why employees may want to run your business. These could include:
- making a contribution and having a say in how the business is run
- developing ideas and making a difference to businesses performance
- sharing in the success of the business
Employee Ownership can mean a big change in approach and mind set for some employee groups but the benefits can be enormous.
What do I need to do to prepare my employees for ownership?
There are several actions that can be taken before employee ownership is embarked upon. These could include:
- considering the skills and ambition in your existing staff members - evaluate their training needs, start sharing strategic decisions and delegating tasks
- encouraging all staff members to participate in the development of the organisation through open communication and incentives
- moving towards operating an ‘open-book’ approach to managing the business
Why should business owners consider employee ownership?
Many business owners expect to be able to sell their businesses when they retire. Employee ownership ensures that the business is taken over by people with an interest in developing, building and sustaining it. And, selling to the employees can be more palatable than selling to a competitor!
Many family businesses have succession problems where the upcoming generations do not want to take over the business. Selling the business to employees could be considered as an opportunity to pass on the business to a ‘wider family’ of employees who have just as much invested in its success.
Realising their investment
Business owners may wish to leave the business before retirement age but take a monetary amount corresponding with the value they believe they have added to it. The employees may be able to group together to purchase the company and add further value to it.
Securing their employees jobs and sustaining their communities
Business owners may want to leave the business but will often feel a responsibility to their employees and to the community the business is based in. Often they will still live in that community even though they have retired. Employee ownership allows the employees to take control of their company and their jobs. The ownership structure will also make it very difficult to sell the company to an external buyer, ensuring that the company, and the jobs, stay in the local area.
Would you like to speak to somebody about employee ownership?
Please contact Business Wales by calling 03000 6 03000 and quoting ‘EO2016’ and we will be happy to arrange an informal discussion with one of our Social Business Wales employee ownership experts.