Business succession is often the elephant in the boardroom, however things change and business owners need to retire. Poor planning can leave a previously successful business very vulnerable. In reality, it’s never too early to start thinking about your succession options.
The traditional exit route of selling to a trade buyer isn’t always attractive, especially to SME and family businesses. A sale to a competitor can deliver a nice price to a seller, however for many owners of small businesses, the company value is more than its cash worth.
Many of these companies have a unique culture, strong supplier and customer relationships and a loyal, long service workforce. SMEs and family firms play an important role in their local communities, providing jobs and careers for local people. Many business owners know what they don’t want, and that’s someone coming along and disrupting what has been built up over many years.
There is another succession option coming to the fore in the Scottish business-place; a sale to the employees means that the people who know the company best are in control, relationships are maintained, and the business stays in the area.
The benefits of employee ownership are acknowledged by politicians of all persuasions, as evidenced by the tax incentives introduced in 2014 that mean if a controlling stake is sold to an employee trust, then that transaction is free of Capital Gains Tax.
The benefits to the vendor go beyond any tax breaks. The outgoing owner can determine the pace of their exit from the company, and may want to remain in a non-executive role. The beauty of employee ownership models lie in their flexibility. The structure can be designed to suit the business.
Some companies opt for 100 per cent trust ownership; that’s a simple model where shares are held on behalf of employees. People don’t focus on their slice of the pie; everyone benefits from making that pie bigger. Other companies choose to have some form of individual shareholding, to incentivise and reward the contribution employees make to the company’s success.