Succeeding at succession – the employee ownership way

“Failing to plan is planning to fail”. This famous phrase, attributed to Benjamin Franklin, has significant resonance for any business owner thinking about their succession options.

Far too often, an owner puts off this important decision – sometimes until it is too late.

However, it’s easy to see why this is often the case. Owners of established businesses invest their lives in their business – it and they are intimately intertwined.

But they are often patriarchal leaders; involved in every decision, and the person everyone turns to for the nod of agreement or the look of dissatisfaction!

No wonder then that many of them find the idea of handing over the business such a challenge – and one which they too easily avoid. How can you plan for a time when you are not going to be there? Who knows the business the way you do? Who can manage the customers like you? Who cares about the business as much as you do?

The answer of course is the employees. Those who know the products, the services, the clients, and the suppliers intimately and whose livelihoods are intimately dependent on the success of the business are very likely some of the best guardians of the business in the future.

The recent growth of employee ownership is as a direct result of the increasing number of SME and family owned businesses having discovered this structure of ownership is the perfect solution to their succession challenge – as was reported by the Federation of Small Business (FSB) in their recent article.

The employee owned market is growing, with at least one or more new transitions announced most weeks. In fact since 2014 and the introduction of the Employee Ownership Trust (EOT), the market has grown by more than 10% – seeing the creation of more than 250 new employee owned businesses.

The performance of the sector’s largest businesses also continues to impress with the 2018 UK Top 50 Employee Owned Businesses reporting productivity increase of 7.3%, evidencing the experience of many employee owned businesses reporting increased performance.

Whilst accountants or lawyers may consider the EOT structure as simply an option to present to an owner at the point of succession, its attractiveness to many owners is more profound; it is very often linked to their view of their responsibility to their employees and the recognition of the value they have created by the business.

Most owners care deeply about the people in their business; they recognise and respect that it is their endeavour that has directly contributed to success and growth. They also recognise that the value created is not simply in the products or services delivered and the resulting revenues; the long term impact in local supply chains, regional employment and even charitable donations often matches the levels of profit generated.

These owners want a succession solution therefore that recognises and rewards employees, that continues to root the jobs in the local economy and that provides long term continuity to local supply chains and customers alike. Of course, they also want to recognise fair market value for the business for themselves and possibly phase their exit over a few years, to suit their own personal ambitions.

I had the pleasure this week of spending time with the employee owners of Alpha Leisureplex, previously a family owned business that is now employee owned. Its original owners were seeking a long-term solution for this well established and much-loved business that has been providing holidays to British families for 35years. At their annual meeting this week, I met many of these employee owners; coach drivers and hotel managers, embracing their new-found ownership responsibilities, speaking of ‘our’ business and of the sense of ‘family’ that employee ownership has created, all whilst reviewing the company’s latest financial performance and discussing its future acquisition strategy.

Another example of a business that has realised its succession ambitions with employee ownership is Aardman Animations. Aardman’s most famous son Morph was no doubt delighted to find out in November 2018 that his future is now safe, as his creators and business founders, David Sproxton and Peter Lord chose, that instead of selling the business to Hollywood giant Dreamworks, to sell the business to its employees, thereby safeguarding the future of this innovative UK company. Using an EOT to do this not only attracted welcome tax relief for both the owners and the employees, it has allowed David and Peter to dictate the terms on which they move towards full retirement from the business, whilst ensuring a suitable handover to the developing senior leadership team.

Owners Peter and Val King of The Rooflight Company are possibly the latest UK business to make the move to employee ownership as they plan to pass their business into the hands of its employees next month. Their decision is rooted in both the commercial ambition and core values of ensuring the business remains values-led, innovative and sustainable.

Employee ownership is now a credible business solution – at both succession and scale up – yet the challenge of ensuring that every business owner is aware of it by ensuring that accountants, lawyers, banks and business advisers are familiar with its benefits and its relevance to their clients still persists. It is for that reason that we will be using the EOA’s 40th anniversary year to continue to champion and campaign for more employee ownership, partnering with our members and others to tell more of the impressive stories of business success under the EOT and to ensure that every business owner is able to assess if employee ownership might be right for their business, for their employees and for their locality.