You have decided that it’s time to start working on your succession. Maybe you have chosen EOT, maybe it’s one of the options. Who do you turn to for help?

In this article I will outline the various people you should turn to for help – and issue some warnings as to who might not be best placed to help.

This includes a major warning of some practices that we have seen in the EOT space that you should be aware of.

Legal

Clearly you are going to need legal advice. To sell to the EOT requires specific documentation to be prepared, and you should make sure you use solicitors with specialist EOT experience.

A sale to the EOT is more nuanced than a standard sale, and we have seen some documentation prepared in the standard way without full understanding of EOT issues. This might cause the company major problems in the future.

Depending on your timescale, an early conversation with EOT knowledgeable solicitors is strongly recommended (we are able to make recommendations). However, if you are taking time to prepare the business for EOT, over, say a year or two, then the implementation and drafting work from the solicitors will probably not be needed until nearer the sale date.

Accountants

Depending on the nature of your company and the relationship you have with your accountants, they may not have a major role to play.  That said, some businesses have a strong and strategic relationship with their accountant and that person may be very useful, particularly if they have EOT experience. Whatever happens, an accountant will certainly be needed for valuation, and it is advisable to take advice on issues such as structuring the deal and the HMRC submission.

It is also possible that your business will have other issues that need to be addressed, for example, dealing with minority shareholders, restructuring of shares and so forth.

It is reasonable to say, however, that as there is no negotiation with third parties, the requirement for the corporate finance element of accountants is perhaps less than what would be required for a typical trade sale.

EOT Transition Support

We may be a little biased here, given that this is what the Eternal Business specialises in, but this is the one area which many companies fail to properly address.

Tackling the changes to your business needed for a successful transition to employee ownership should be the first appointment that you make. Changing the culture of the business to one which is employee owned takes time. It involves addressing the issues of key employees, and therefore such an appointment should be made before you even tell your team of your intentions.

That is not to say work on the employee ownership culture stops at the point of sale – quite the opposite, one could argue that this is where this support is needed the most.

As you will almost certainly be repaid through future profits of the business, it is a small cost to give the business every chance of thriving once it is employee owned.

Business Brokers

A business broker will find you someone to purchase your business, and get involved with the negotiations. They may help raise finance, and advise on structuring a deal.

As the sale to the EOT does not involve a third party, traditional business brokers have little part to play in an EOT deal.

This has not stopped some business brokers from saying that they can advise on EOTs. We have come across one instance of a business broker quoting a fee of £50k for advising on an EOT, when they, quite literally, had no role to play in the process.

One particular word of warning here. We are aware that some business brokers include in their terms and conditions, when appointed, that they are to receive a fee if there is a change in ownership of the company. That fee can be between 3% – 7% of the value of the business.

This can mean that you:

  • appoint a business broker to find a buyer;
  • decide you don’t like the idea of selling to a third party after all;
  • several years later you sell to an EOT;
  • the business broker then invoices a huge fee.

We are aware that this has happened. Indeed, one solicitor told us that as many as one in three businesses he has spoken to about the EOT has had such an agreement in place without realising it.

Of course, not all business brokers are the same and every profession has its dubious tactics that some firms use. We simply recommend that, if you appoint a business broker, read the terms and conditions carefully.

Conclusion

There are of course, other types of help that businesses can get. For example, HR support can be very useful in adapting your HR processes for employee ownership. Coaching and training for leadership teams is also important.

The above, however, represents the main advice that you should seek.

 

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