Employee Ownership Simplified in 5 Easy Steps

Employee ownership is one of the most rewarding business restructuring exercises you can undertake, and particularly if you are the business founder and care passionately about your employees and the legacy you have built up. However, there is a lot to consider on the journey towards this transition. Properly executed, becoming an employee-owned business can deliver great benefits and rewards to everyone, but it is essential that you properly consider every step along the way and give due attention to every detail.

If the thought of making the switch to employee ownership is a daunting prospect, don’t be put off by the amount of work involved. It is worth the effort and all your team will be part of the journey with you. Here we have simplified the process so you can see the summary actions that are most important as you take the big step for your business.

1. Understanding employee ownership

The first step on any journey is to fully understand exactly what your objective is and how you intend to get there. You need to thoroughly research the concept of employee ownership, how employee ownership trusts (EOTs) work and what is involved in the transitioning process. You should involve key members of your team during this initial fact-finding phase, because you need their buy-in at an early stage and people you trust to bounce ideas and opinions off. There are plenty of case studies available covering other businesses that have gone through the journey successfully. Read up about their experiences and the challenges they had to overcome, and apply them to your business. This should involve the whole journey; engagement, implementation and the first few years of operating as an employee-owned company.

2. Is employee ownership right for me?

Once you have a full understanding of what you might be taking on, you and your senior team need to ask some full and frank questions about whether it is the right time for the business to become an EOT. There are a number of factors to consider here, including some fundamental compliance issues, affordability of repayments to founders and practical succession planning but this process will go a long way to answering whether employee ownership will be successful for you. Essentially, these are the questions you need to be addressing:

• Are you a limited company?
• How many shareholders do you have?
• Do you have stable finances and a healthy amount of working capital?
• Is the owner/founder emotionally ready to sell the business?
• Can the business afford the repayments to a founder?
• Is the owner/founder happy to receive the proceeds of the business in over a number of years to fund their retirement, for example, or do they need the money straight away?
• Is there a strong collaborative culture in the business where staff are motivated, engaged and loyal?
• Is there a good structure in place where key people can move up and accept new roles and responsibilities, and there won’t be a leadership void when the owner/founder leaves?

If you have fully researched EOTs and what employee ownership is all about, you will know what the right answers are to these questions and why they are being asked. And if you can answer in the right way for all of them, you are in a strong position to become a successful EOT.

3. Compliance

Now that you and your senior team are satisfied that employee ownership could work for you, there needs to be a thorough exercise in understanding the legal and financial aspects of the transition. This is where you could bring in third party experts and professionals to guide and advise, but essentially, you need comprehensive insight into the legal and financial elements of becoming an EOT. This will ensure that you fully comply with the requirements and the exercise will put you in a strong position to maximise the financial advantages available.

4. Engagement

This is perhaps the most important phase of the employee ownership journey. People are often fearful of change, so how you introduce the concept of employee ownership is absolutely critical, and needs to be tailored to suit the people and the culture that currently exists. Securing employee buy-in is essential in making the switch successful, and once this is achieved, a lot of the hard work will be done for you. You need to think about how to introduce the idea, what the benefits will be and how employees will be affected day-to-day and over the long term. This will involve meetings, presentations, literature, online resources and one-to-one discussion with individuals. You need to be prepared to face some concerns and opposition and to be armed with the right response. And don’t forget, your business doesn’t have to become 100% employee owned.

5. The implementation roadmap

Although you are well on the way to becoming an EOT once you have your employees on board, the actual implementation from this point still needs to be planned very carefully. Communication is essential to ensure everyone knows what is happening and when, and you need to be very clear about restructuring and how the business governance will work going forward, but essentially, many employees with concerns will be pleasantly surprised when not a lot actually changes day-to-day. You will have planned the legal and financial aspects of the transfer, and that can happen quickly and simply, but managing the cultural change can take longer. There may be an element of anti-climax because people think that everything has changed when, in reality, not much has changed at all. But people may have new responsibilities, new authority and new expectations, and their mentality might not necessarily change overnight, which therefore needs to be managed accordingly.

If you need help, support and guidance with becoming an EOT, there are great resources available via the Employee Ownership Advisor.