March 29th, 2021 / Insight posted in Articles

Webinar recording: Should you consider an Employee Ownership Trust as an exit strategy for your business?

The panel were certainly not short of issues to discuss and questions to answer in this lively interactive session. They have contributed some of their top tips to take away below:

  • Ensure the price at which you sell to the EOT is at fair market value and has input from a professional. Ensure that you consider what sort of impact the pandemic has had on the long term rather than the short term value of the business.
  • While most sales to EOT’s are funded by the future profits of the business they can be externally funded as well  – we can help with preparing cash flow modelling to take to potential lenders. Invoice discounting is also worth considering to generate free cash.
  • After the sale to the EOT consider granting EMI options to key senior management  – this enables them to participate to a larger degree in any future third party sale.

Tax

  • Talk to tax first to ensure no surprises down the line.
  • If you are not selling 100% of the shares to an EOT, make sure there are sufficient shares to avoid the EOT being diluted below 51%.
  • Don’t over complicate the sale arrangements and give HMRC ground for questioning the commerciality. A zero% rate of capital gains tax is generous, so don’t put it at risk.

Legal

  • Engage with staff so they feel involved and understand the benefits for them.
  • Understand how your role in the business will still be vital but different.
  • It’s important to keep the business profitable so that the purchase price can be paid.

If you’d like to find out more about EOTs please contact us below.