Ok, so I founded EOTexpert, you may think that I may be a little biased, but I’ll try and be as impartial as possible…
The truth is, in my experience, an EOT project is seldom about the tax incentive. Yes, it has been a very good tax incentive (and in its changed form it remains so), but the founders that I have worked with, never looked to the tax incentive as the key reason for the decision to take the EOT route.
‘This is the succession route that I have been looking for’ is the phrase that has been repeated many times to me as founders explained that it was only after another failed trade sale or an absence of willing buyers that led them to delve deeper into the options beyond the more familiar exit routes.
So what is it about employee ownership that appeals to these founders? Here’s a few observations from my work with founders on their EOT journey.
Creating your own buyer.
An EOT project does not require a willing third party. This is such an obvious but regularly overlooked point. Some industries don’t have a myriad of buyers out there, or if they do, they are the ‘aggregators’ swallowing up the independents to create a homogenised group of identikit businesses.
That may be fine, but there is a thin line between consistency and complacency. The business world does not need more soulless replicas. AI can do that for us quite comfortably.
Preserving your organisation.
Founders rarely like to see the organisation that they built and nurtured, changed and hollowed out. Buyers may be well-intentioned but they inevitably bring their own style and way of doing things.
An EOT succession not only protects the organisation, but cements a foundation on which the company can grow further. Once leadership and employees realise that they have a stake in the success and that their business is not to be taken over by a third party, unlocking new potential and aspiration becomes a real opportunity.
Sharing wealth.
In the UK today and beyond, it’s not hard to find many examples of employees being badly exploited. Zero hours contracts, unrealistic targets and simple carelessness in the workplace has led to the ‘quiet resignation’ of employees. Huge mega-corps that are too big to fail are often also too big to care.
You don’t find this in EOTs. With employee-owners at the heart of the organisation, the business is owned and run with the employees in mind. If the company succeeds, the success is shared with the employee-owners, not shipped off to a tax haven. This benefits the individuals, with a strong likelihood that this benefits their
communities too.
What have I experienced?
As an external trustee of several EOTs, I have seen first-hand that becoming employee-owned can be a catalyst to extraordinary changes in a business. Sharing financial insight can lead to employee-owners scrutinising options and seeking better value outcomes or adopting an entrepreneurial mindset to improve service and sales. Employees engaged not only in the profit-share but also the means by which it
is achieved. Co-owners responding to the challenges of their sector and sharing in the success of their business.
The decision to change the tax incentive was clumsily introduced by the Government. Rather than signposted and guided as an impending change it was slammed into the environment without fair warning. That, in my view, was unhelpful and poorly implemented.
But it does not change the facts about EOTs. Employee-owned businesses are not outliers anymore. They may still make up a tiny minority of the business world, but they are more than making up for it in changing the way that business is done with a degree of resilience, compassion and purpose which is all too often lacking
elsewhere.
But if all of that is still not enough, let me be clear, it’s still the best business succession tax incentive out there!
