Sarah Deas: Employee ownership is a viable route to succession

With 16,000 employers in Scotland looking to transfer ownership in the next five years, we're urging business owners to explore employee ownership as a viable succession route this Employee Ownership Day.

Sarah Deas says employee ownership can increase productivity and creativity. Picture: Contributed
Sarah Deas says employee ownership can increase productivity and creativity. Picture: Contributed

Succession is a hot topic just now, especially as we see the baby boomer generation reach retirement age. Many business owners want to retire and in an owner-managed business that can mean a change in ownership and a change in management. For owner managers, succession is often a double-edged sword.

In a family firm, the first choice is almost always to sell to family. However, that’s not always an option if the next generation has chosen a different career. Indeed, the Scottish Family Business Association found that 33 per cent of family firms reach second generation and only 9 per cent make it to the third.

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Throughout Scotland’s business community, the benefits of employee ownership (EO) as a driver for growth are becoming increasingly recognised. The advantages have been proven in Employee Ownership Association-led research, and include improving employee health and wellbeing, increasing productivity and fostering creativity and innovation across an array of industry sectors.

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By having a stake in the business, employees have a vested interest in increasing productivity and driving innovation. This sense of ownership leads to employees being more willing to contribute ideas. Crucially, a competitive price can be achieved for a company and owners can choose to remain involved.

An added benefit for vendors is new legislation introduced in 2014; sales to employee ownership trusts are exempt from capital gains tax as long as certain conditions are met. EO also allows the vendors to dictate the pace of their exit and have a measure of influence over the future shape of their company.

Many employee-owned businesses in Scotland choose to sell to an employee ownership trust with the vendors being paid the value of their business from current and future earnings. That way business owners receive a fair price for the company and employees don’t have to dig deep into their own pockets.

The number of employee-owned firms based in Scotland has doubled in the past six years and this growth is forecast to accelerate. Currently there are 78 employee-owned businesses operating in Scotland, with approximately 6,500 employees. Our aspiration is to achieve a tenfold increase in employee ownership in Scotland over a ten year period.

To mark EO Day and to help businesses find out how employee ownership could help, Co-operative Development Scotland is hosting a free webinar today at 1pm. To register visit the Scottish Enterprise website.

• Sarah Deas is chief executive of Co-operative Development Scotland, the arm of Scottish Enterprise working in partnership with Highlands and Islands Enterprise that supports company growth through collaborative and employee ownership business models