Firms advised to keep it in the family by Loch Fyne Oysters boss

THE boss of Loch Fyne Oysters is urging family firms to consider selling to staff rather than an outsider to resolve issues over succession planning.

Bruce Davidson, managing director of the company which trades in sustainably produced seafood, will advise delegates on how to organise an employee buyout at an event on Tuesday in Edinburgh, hosted by The Scottish Family Business Association (SFBA) and Co-operative Development Scotland (CDS).

Succession is a problem for many family businesses, with only 33 per cent making it to the second generation and 9 per cent to the third, according to the SFBA.

Loch Fyne Oysters has been employee-owned since 2003, following the sudden death of co-founder Johnny Noble. It was sold to a trust representing all 100-plus staff, and financed by Royal Bank of Scotland and employee buyout specialist Baxi Partnership.

Davidson said: "Selling to employees provides more continuity than a sale to a third party. It rewards loyal staff who will be less likely to walk away and keeps the business in the community. At Loch Fyne we have a low absence rate and good staff retention."

Employee ownership also enables long-term planning, without the short-term pressure to turn profits that an external acquirer would demand, according to Davidson.

During the recent downturn, Davidson said staff unanimously voted to take a pay cut to aid cash flow over a six-month period. He added that Loch Fyne staff have benefited as they have been paid dividends on their shares. Employees who retire have made a profit from selling on their stakes to former colleagues.

Another piece of advice Davidson gives to companies considering employee ownership is to have plans in place to allow for future financing.

Loch Fyne is currently considering a range of options to raise capital, including investment talks with Argyll and Islands Enterprise.

Sarah Deas, chief executive of Scottish Enterprise subsidiary CDS, said: "Continuity of a family business is one of the biggest concerns for its owners, particularly if the business has been carefully managed across many generations."

She pointed to evidence that employee-owned businesses outperform the FTSE All Share. The UK Employee Ownership Index published by law firm Field Fisher Waterhouse revealed that, over the past 17 years, companies owned by their staff have outperformed the index by an average of 10 per cent each year.