In recent years, employee ownership has gained popularity as a means of incentivizing and engaging employees, improving company culture, and promoting long-term sustainable growth.

Employee Ownership Trusts, whereby business owners can pass the reins of the business to their workforce while retaining some level of stewardship, are increasingly popular. The EOT structure means a majority stake - a minimum of 51% - in the shares of the company is held by the Trust on behalf of employees. Employees can then become involved in the decision-making of the company and help develop its future strategy and direction, while also benefitting from the profits of those shares.

Here, GS Verde explores the strategic influences behind an owner's decision to sell to their employees.

Elevating staff:

Employee ownership is often considered reserved for the likes of major corporations and large enterprises. However, as there are few statutory requirements, an EOT can suit a range of business sizes and sectors.

For printing and label manufacturing business, Handy Brand, the team proves that good things really do come in small packages. Though an EOT is not necessarily common with such a small team, the structure gives staff a tremendous opportunity to collaborate more closely and share in the business' success more like partners.

Founder Martyn Kilford explained:

"Being a small, close-knit team gives us a big advantage over our competitors. Each team member is an integral cog in the Handy Brand machine."

In turn, this recognition fosters greater employee engagement and commitment to building a successful business.

Strengthening values:

The strength of Educ8 Training's enduring employee engagement made employee ownership a natural evolution. The transaction created an even greater sense of empowerment, with a more employee-centric structure benefiting every member of the team and the business.

CEO Grant Santos said:

"Values, ethos and culture are what we see as our unique selling points. It was a natural transition and a clear way for employees to benefit from the business. The feedback from our team is that this has strengthened their existing buy-in to the business because they can see the longer-term positive impact for them."

Improving business performance:

Independent research shows that employee ownership delivers superior business performance, whether through increased sales, productivity rates or even salary raises for staff. The structure also leads businesses to improve communication channels and share knowledge more widely.

This consultative approach drives innovation and opens new routes to success.

Employee-owned Paramount Interiors has posted impressive year-on-year growth, fuelled by its completion of an EOT in 2021. Expanding rapidly across South Wales and South West England, annual turnover has increased from £10-16m to over £30m.

New growth opportunities:

As an EOT can enhance business performance, it can create new opportunities, including geographical expansion and higher market thresholds. Employees with a significant stake in the business are more likely to feel energised in their role and perform accordingly, knowing their contributions are meaningfully recognised, which in turn promotes growth.

The EOT at international telecommunications firm, The Kenton Group, serves as the driving force for the business to enter into newer, larger markets, through the empowerment of its staff: there is now an even greater collective drive for innovation.

Safeguarding and succession planning:

Perhaps the most common motivation for an EOT is how it provides a clear route to succession. When Turners Coachways announced an EOT, Managing Director Kevin Jones said:

"Over the longer term, the structure will allow for further progress of the existing senior management team within Turners, thereby safeguarding the future of the business."

As a vehicle, an EOT can be used by the current owner(s) of a company to plan a partial exit, and a future full exit at a later stage. Post-EOT the seller can still retain a large minority interest in the company and remain a director or managing director. This may suit an owner who wants to hand over control but is not fully ready for a complete business sale.

The additional benefit of not being required to pay Capital Gains Tax makes it a tax-advantageous succession plan for the existing owners of the company.

With all these benefits considered, it is evident that selling your business to your employees via an EOT is a win-win option that establishes a clear and natural path for internal progression and overall business growth. It is certainly a route worthy of consideration when planning your exit or business succession.

As a business owner, you will need both specialist corporate finance and legal support to complete an EOT. The GS Verde Group can advise on both areas, while also advising on the tax efficiency planning and advantages available when you sell your business, providing a truly end-to-end service all under one roof.

For an informal discussion about your business sale options, or your journey towards Employee Ownership, you can book a call with one of GS Verde's experts in just a few clicks here.