By Chris Budd…….
A sale to an Employee Ownership Trust (EOT) is attractive for many types of businesses. It is a good commercial decision for any business owner who wants to see their business continue beyond them, and receive a market value for the sale of the shares.
It is fair to say that the EOT is an exit route which is particularly attractive to purpose led businesses.
This does, however, lead to one challenge which I see time and time again when purpose led businesses approach the transition to employee ownership – underestimating the task ahead.
The Purpose Led Business
Some businesses are started in order to fill a gap in the market. Maybe someone has worked for a big organisation and seen an opportunity. Such businesses can find their purpose.
There are some people, however, who set up their business specifically to help solve a particular problem, and by doing so make the world a better place.
Whichever route they have used to arrive at their purpose, a purpose led business will provide a clear flag in the ground around which employees and clients alike will gather.
As a result, certain characteristics of the business will typically appear.
- Low turnover of staff
- High engagement of employees
- Loyal customers
- More predictable turnover
Such characteristics are also those found in an employee owned business. As a result, owners of purpose led businesses often feel that they do not have a great deal to work on in order for their businesses to be EOT ready.
It is important to recognise that an EOT owned business does not function in the same way as a privately owned business.
A business that is purpose led can give the appearance of being similar to an employee owned business. However, there are a number of significant differences, created from the different ownership model.
This centres around decision-making, and the importance of the employee voice. A purpose driven business may still have its decisions made by one or a few people, and it may still be subject to the same political pressures of new leaders who want to take over from the departing bosses.
Indeed, if the strength of the vision came from the founders who are departing, some of the issues around clarifying exactly what the vision looks like and who will implement it could be exacerbated.
The fact that the shareholders of an EOT business are effectively the trustees, who must act in the best interest of the beneficiaries – the employees – creates a dynamic within the business that is unique. It is also one that cannot be assumed to have been be prepared for by dint of being purposeful.
The EOT Transition
It is crucial for a business to transition to employee ownership first and engage lawyers and accountants only for the transaction at the end of the process.
For a purpose led business, this transition process should include:
- Managing expectations of key employees
- Clarifying the extent to which the business ultimately looks to the founders (perhaps for inspiration or decisions)
- How will reward be shared with employees?
- Replacing the entrepreneurial spirit
- Creating clear decision and reporting pathways
and many other areas.
The Eternal Business Programme takes a company through all these areas, in order to ensure that the business is truly ready for a sale to EOT.
This will significantly increase the chances that the business will continue beyond the owner, and, perhaps just as importantly, will continue to make the profit with which to pay the owner.