Employee trusts show future of firms can be about more than cash for founders

WHEN Angus and Shona Knight decided it was time for a succession plan to be put in place they ran with an idea, pulling four employees aside and forming a transition team.

Succession is becoming more complex for Scottish businesses. Baby boomers are reaching retirement age at a time of unprecedented turbulence in the political world, which is driving huge economic uncertainty.

Not every family business has a next generation in the wings, and so with business owners having spent years and even decades building relationships, training staff, growing revenues, it is understandable that they want ensure continuity and still enjoy retirement.

Recognising this, in 2014 Employee Ownership Trusts were introduced, giving owners the opportunity to transfer shares to a staff trust, receiving a fair price for their business free of capital gains tax.

Seeing this as a viable solution to their succession quandary, the Knights sent their assembled team out to visit companies which had already transitioned to an employee ownership model.

“They came back with nothing bad to say. We looked for a catch and there wasn’t one,” said Shona Knight.

Of course there is risk, the structure of these trusts means the previous shareholders receive payments (monthly or annually) based on the company’s profits. If it doesn’t make money, if the new management team fails, then they could receive nothing, whereas a sale to a competitor would provide a retirement windfall. And yet 93 businesses have now moved into employee ownership.

The reason is that many owners don’t want to sell to a competitor and retire on the proceeds, because their business means more to them than just money.

So with a sound economic model in place and support from Scottish Enterprise, and from indepedent consultants, expect to see the number of employee-owned businesses grow substantially this year.