EP Business in Hospitality Issue 53 - April 2015

Andrew Williamson | Opinion
Employee
ownership
– what’s your
appetite?
Recent years have seen considerable success achieved by companies owned and run by their
employees. The benefits of this type of ownership are for many business owners the answer
to deeply held aspirations. So, asks Andrew Williamson, is this the business model for you?
Nick Dawe
While the John Lewis
Partnership and Wilkin &
Sons, the makers of Tiptree
preserves, are probably the best-known
examples of employee-owned businesses,
there are many more. In particular, this
model seems to be very successful in
sectors that depend on innovation and
great customer service for their success.
So, could employee ownership be a key
success factor in the hospitality businesses
of the future? We believe it could. And it
certainly could form part of the business
owners’ succession and exit planning.
Sustainable benefits for the business
and the employees
A Government report (the Nuttall review)
highlighted that giving employees a
meaningful stake in the business they
work for can help companies to be more
successful. Research by the Employee
Ownership Association has shown that
employee owners deliver significant
commercial benefits for businesses.
These benefits include but are not
limited to greater employee engagement
and retention, sustained innovation,
increased productivity and an average
year-on-year growth of 4.6%. They also
tend to be more profitable and to ride out
market downturns more easily because they
are more able to plan for the long term. This
is, in part, because employee ownership
provides investment in the business from
those working for the business, reducing the
impact of external shareholders who may
simply want a quick return on their funds
to the detriment of its ongoing success.
For employees, greater involvement in
management decisions means a greater
sense of achievement and well-being, with
80% of them being willing to recommend
their business as a place to work.
Great tax incentives
The Government has encouraged employee
ownership by providing some exceptional
tax breaks for the current shareholders.
Many business owners know that if they
sell their company, they will enjoy a
favourable tax rate on the proceeds, which
can see them paying just 10% taxation on
the gain. However, if a business is sold to its
employees, the entire gain is free of tax.
Should the business do well under the
ownership of the employees – and, with 55%
of companies reporting better financial
performance following a transfer to
employee ownership, it’s highly likely they
will – the new tax breaks also extend to
payment of certain bonuses to employees.
An attractive alternative
An employee buy-out (EBO) is a little
different from a management buy-out
(MBO). As the name suggests, in an EBO
a business is being bought by the employees
(often by way of an Employee Ownership
Trust) and not just the leadership team, as
with an MBO. For some businesses this may
be the right way forward and through a
combination of bank funding and deferred
payments, structuring an EBO could be
a realistic and attractive succession plan.
Of course, business owners don’t have
to hand over all the business at once. Many
choose to stay actively invested and involved
or to be on hand to mentor the employee
representatives who run the business.
The benefits that employee ownership
is now delivering for businesses, employees
and the economy, coupled with support for
this business model from the Government,
means it is here to stay. For hospitality
businesses where innovation and customer
service are paramount to success, we think
employee ownership will play a significant
part in their future.
Andrew Williamson a cate finance
partner at WMT Chartered Accountants.
epmagazine.co.uk | 11