Life after the transition to an EOT

• Business owners considering succession planning have a variety of exit options, from selling the business, an MBO, or even transitioning to an employee ownership structure.
• An Employee Ownership Trust (EOT) is one form of employee ownership that could empower and inspire the employees within the business and delivers tax benefits for the exiting vendors.
• This transition may also bring challenges and a priority for long-term success is maintaining the focus on business performance and profitability.

Many of the businesses that approach Shawbrook for funding to support their transition to employee ownership, most often in the form of an Employee Ownership Trust (EOT) are at the early stage of the process. As with any pivotal event that we support, our team get to know what makes the company tick and its objectives, whilst working alongside the relevant parties throughout the transition.

Preparing for an EOT sale

For EOT businesses, we highlight the importance of a strong management team and an inclusive culture, an established structure and a focus on the long-term strategy. This is important as they’ll be critical stakeholders in the business’ success post-sale.

Businesses moving towards an EOT will be very aware of the multiple benefits of this change, including the positive impact it can have on employee engagement. They will also be aware that bringing their management team into the conversations early on and having an open door to queries from employees will facilitate a smooth move. Realistically everyone will be focused on crossing the line and it is an exciting celebration when the deal is done.

Key considerations for a successful EOT transition

So what happens after the big transition and what do businesses need to consider to make this a long-term success?

Transitioning to an employee ownership structure does not automatically guarantee success and quite often, there will be initial challenges as the new normal embeds. Some firms may take time to adjust to the new leadership set-up, managing the new debt in the company, or even the  departure of the original owners. This can be especially challenging where the original owner may have been hands-on and innovative in their approach. A comprehensive business plan, solid management team to execute, a robust finance system and clear business structure will help iron out these initial difficulties and can foster employee innovation and improved business performance.

Despite the settling-in period, it is crucial to keep momentum going and maintain a focus on business performance, service delivery and inevitably, a profitable bottom line. This can be partially helped by preparing solid responses to the funder’s initial assessments, and where enhancements to the financial structures may have been identified implementing them. 

There is also value in using the follow-on monthly reviews with the funder as an internal exercise to ensure overall plans are on track. It is also essential to keep communication open across the business, promoting the company’s vision regularly and ensuring all teams have bought into the plans.

Post-EOT transition priorities

Successful firms tend to view the EOT as a stage in the journey of the business. A key stage but one that should empower its employees and management team to embrace new growth opportunities – whether this involves expanding their facilities, making production or service improvements or looking towards acquisitions.

For some firms, paying off the outstanding vendor debt becomes a priority and naturally, this can be done gradually with financial returns from the business. Some clients opt for a faster process working with a third party lender to support an accelerated exit as well as funding other growth projects.

Specialist support for funding an EOT

Whether taking an organic route or opting for funding initially, working with an experienced advisor and a specialist lender at the second stage of the journey can make all the difference. Both parties will understand the EOT structure as well as the tax and convenance elements and can factor these into the proposed package. Plus if they were involved in the initial arrangements, they will know the company financials and objectives firsthand and will realistically be well placed to support with a bespoke solution that caters for the company’s future growth. 

John, Oliver and Paul also took part in some Business Magazine roundtables which covered various considerations and aspects of Employee Ownership. Drawing on insights from these events, Business Magazine produced an EO Supplement.

Download “Employee Ownership Explained” here >> Employee Ownership Explained - The Business Magazine