Guest Blog; Chris Budd, The Eternal Business
In June 2017, I had reached a point of great frustration with the business I had founded in 2000, financial planning company Ovation Finance Ltd.
For the previous seven years, I had been following a deliberate plan of making myself the least important person in my business. My original objective was to eventually perform only the roles that I enjoyed. Ultimately, however, I came to realise that the bigger picture was succession planning, and in particular the fact that I didn’t actually want to sell the business. Instead, I wanted to see it continue after I left.
I developed a model based around four aspects of any business that is essential to making a sustainable business. A clear vision; collaborative decision making; engaged employees; and a new ownership structure.
By the summer of 2017 the first three aspects had evolved nicely. I could not, however, find an ownership model that worked for me. Solicitors and accountants talked to me about various forms of trade sale (which mean my business disappearing) or management buy out (which would mean only a few people benefitting – and probably a subsequent trade sale in five years time!).
Then one solicitor suggested I attend a meeting of the Employee Ownership Association. And everything changed!
What Employee Ownership Gave Me
I wanted my story as a business owner to end in a way that would give me my cake and allow me to eat it as well. I’m proud of Ovation, it’s a cool little company with a strong focus on using money to increase happiness (as evidenced by the Financial Wellbeing book and podcast). I wanted to extract the value that I had built up, but I also wanted my business to continue – to leave a legacy.
Employee Ownership Trusts (EOT) were invented for precisely this sort of scenario. It is a special type of trust fund whose beneficiaries are the employees of the business. So I established an EOT, the business was (independently) valued, and the EOT bought a majority of shares from me. The EOT now receives profit from the business, which it uses to pay me for the shares.
The result: I get paid (albeit over a longer period of time); the employees get to have a say in the running of the business and will receive future profit over and above my payments. Everyone is happy, right?
The Problem With Employee Ownership
What could go wrong with this model? Well, the bottom line is that the vendor gets paid for the shares by a business that they no longer control.
That can feel a little scary. If letting go and handing over control is difficult for someone who has run their own business for many years, it is doubly hard when the financial security of you and your family are reliant upon the business succeeding without you!
I realised that the changing ownership of the business was only part of the story. I also needed to make other changes to make the business sustainable, to last forever – to make it eternal.
The Eternal Business is the business model which is designed to solve these problems. It provides a template which will turn a business from one which is dependent on one or a few key people, to one which is run by many for the benefit of many. It is a model which enables business owners to extract their value at lower risk, and the same time ensuring the clients and employees of the business they have worked so hard on can carry on – hopefully, forever!
The Eternal Business
The UK is at the vanguard of this new concept of employee ownership. There are around 280,000 businesses in the UK with between 10 and 250 employees, what one might think of as ideal size for moving to the EOT. There are currently only around 330 EOT businesses.
Perhaps the most important message to get across at the early stage in the life of the EOT is that it is not all about the tax and legal issues. Moving to an EOT business means the handing over of control and a complete change in culture. This does not happen overnight. Tax savings for the owner are, of course, always welcome, but this should not be the sole driver.
This is the focus of what I am doing next. I am staying on as Chairman of Ovation, but I am so enamored with the principle of employee ownership, and the EOT in particular, that I have dedicated the main part of my future career to promoting the concept. This starts with my book, The Eternal Business, and continues with an online programme to help companies to transition into employee ownership.
I believe that the EOT can be society changing. Imagine a person being offered two jobs, one where the ‘boss’ makes all the decisions and keeps the profits, the other where they have a voice in the running of the business and share in the profits. One where the focus is on increasing shareholder value and where business might be sold at any time, the other where the business won’t be sold because it is owned by a trust and therefore has a focus on long-term sustainable profits.
A visit to an EOA meeting changed the course of my business and my life. I want to help the EOA to spread the message.
Inspired by Chris’s story? Sign up to our next Regional Network meetings here.