Your business is your life's work, so selling it can be a stressful experience. Concern over achieving a fair price, be it through a trade sale or by going down the Employee Ownership (EO) route, can be a key driver of anxiety levels.
For business owners opting for EO, having a clearly laid out strategy for how you will fund your exit can mean less sleepless nights, and ensures that you receive what your business is worth in an ordered process.
Business owners exiting through EO models, be it an Employee Ownership Trust (EOT) or employee shareholding, have two funding options to consider.
The first sees them leave initially with a reduced day one payment, and receive compensation for the business over a number of years as their former enterprise generates profits and in turn pays them back.
The second involves receiving a greater immediate payment, for the full or partial value of the sale amount, from a funding partner with the debt then transferred to the company and paid back over time.
Steven Munt, Senior Director at Shawbrook Bank, said the relationship EO destined companies have with their bank or funding partner is of paramount importance when going through a sales process.
He explained: "We pride ourselves on our relationships. When you come to Shawbrook you are typically planning to execute an event that needs financing. However, with any opportunity comes effort and turbulence.
“You have to have someone alongside you who understands that process, and who will hold your hand through the good and the bad."
The Shawbrook director says businesses should remain ambitious even after they have completed their sale into EO and should work with their funding partner on a long-term plan that encapsulates future growth potential.
Steven added: "A business doesn't just stop when it transitions into EO, and the new employee ownership team shouldn’t lose sight of maintaining the business’ performance.
"I wouldn't consider EO and ongoing support different from each other. We structure our transactions in a bespoke manner and base each facility on each individual company's requirements.
"It depends on the strategy of the business and what they are looking to achieve in the years to come. They may be aiming for organic growth or planning acquisitions. I don’t think doing an EOT should stop the business doing this.”
Transitioning to EO is no guarantee of success with many businesses struggling to keep the entrepreneurial flame alive once their founder steps back. However, a well drilled organisational structure can enhance chances of success.
Steven said: “The business needs to continue to be profitable and continue to generate cash.
“Companies planning to move to EO need to consider if they have the management bandwidth, if their finance function is robust enough and if they have the right advisors”
He explained: “EO suits certain types of business more than others. People focused businesses, such as those in professional services, tend to have better EO outcomes.
“The segregation between managers and employees [or staff] isn’t as strong as it is in industries such as manufacturing and wholesalers which makes it easier to get the culture right.”
Many businesses that transition to EO are highly cash generative, have a strong balance sheet and may never have had to take on debt before.
Steven says this can be a big cultural shift for management teams taking control of the business and choosing the right banking partner can again be crucial.
He said: "A business considering transitioning to EO may not have operated in a debt environment before.
"We flesh out what the business relationship will look like in the early stages, what the reporting requirements are, what a good system and procedure might look like in-house for financial reporting.
"The relationship with someone like Shawbrook is very different to one that you might have with a larger clearing bank, where portfolio management is commoditised."
Seeing the transformation that EO can bring to a company and its staff is one of the most rewarding parts of the job for Steven.
He added: "We have helped a fair number of companies transition to EO now and there is always that enjoyment of helping shareholders and management achieve significant milestones.
"When you can walk into a business that has transitioned to EO and see smiling faces across the teams, I think that has got to be a natural high point."
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