I spoke to a business owner recently who asked me to pass on his story as a cautionary tale.
About His Business
Dave (details have been changed) runs a small business with 15 employees. A manufacturing company, he started it 23 years ago and owns it with his wife.
Three years ago, things were going well, and Dave thought about selling the business. After some pretty hairy years in the early days, the business had made it to a solid profitable state, and it seems like a good time to move on.
So Dave went to the obvious person, his accountant.
The Business Broker
Dave’s accountant introduced him to a business broker. For those of you not in the know, a business broker is someone who matches together owners who wish to sell with other businesses and investors who wish to buy.
An important piece of information relevant to the story is that business brokers mainly get paid upon the sale of the business, generally as a commission or percentage of the sale price. In this way they are much like an estate agent, but for businesses rather than houses.
Dave and the EOT
Dave had read about the Employee Ownership Trust (EOT) and wondered if this might be the right route for him. This being three years ago, the EOT was still relatively new, and Dave struggled to find anyone who had any knowledge or experience.
He turned to the person he had appointed to advise him on his exit, the business broker. He was told by the broker that the EOT would not be suitable for his business and advised him against it.
Reasoning that you don’t pay someone for advice and then ignore it, Dave decided not to sell to the EOT. Unfortunately, there were no other buyers, and Dave did not sell the business.
I spoke with Dave last week, as his non-executive director had recommended me as an expert on the EOT for the small business.
As we discussed the EOT, Dave realised that it would, indeed, have been the perfect exit for his requirements when he had looked at it three years ago. He wanted the business he had founded and put so much love into to continue, hopefully forever; he wanted to get a fair value for the sale, and he wanted to look after his employees. Only the EOT offers this combination.
He now realises that the business broker advised him against it not because it was in his best interests, but because the broker would not have received a commission from arranging the third-party sale.
Dave specifically asked me to share his story, in case others are being advised against the EOT by their accountant, corporate finance advisor or business brokers for reasons other than what would be best for them.