How to ensure your business lives on

Traditionally, owners of financial advice businesses have chosen one of two exit routes; either they sell their shares to their fellow owners or, if they own the whole company, they sell the business to a third party.

When CHRIS BUDD decided he wanted to withdraw from his Bristol-based advice firm Ovation Finance, he chose a third route — employee ownership. The company is now owned by a trust fund, the beneficiaries of which are the firm’s employees.

Employee ownership, says Chris, has many advantages — not the least of which is the chance to leave a legacy and to ensure that the business you’ve spend years building lives. In his view, the model is especially suited to financial advice firms.

But there are downsides and pitfalls too. That’s why Chris has launched a new venture, The Eternal Business Consultancy, to help business owners weigh up the benefits employee ownership and to navigate the process.

In this interview, he briefly gives his personal experiences, sets out the pros and cons of employee ownership, and offers advice to owners who are considering their succession planning options.

Chris Budd, why did you decide to sell Ovation Finance? And what made you explore the employee ownership route?

I started working on my succession plan for Ovation in 2012 following business coaching which helped me understand why I wasn’t happy. My work on The Financial Wellbeing Book and podcast had been, and continue to be, enjoyable and informative, and I wanted to pursue such research and writing activities. The trouble was that the traditional IFA exit options – management buy out or consolidator – just didn’t work for me, or Ovation. So when I came across the Employee Ownership Trust everything just clicked into place.

In a nutshell, what exactly is employee ownership?

Rather than the company being owned by one or a few individuals — the ‘boss’ — it is owned by a trust fund. The beneficiaries of the trust are the employees. This means they get the profit and they have a voice in the running of the business.

When did the concept start? And how fast is it growing?

It started in the UK with the John Lewis Partnership in 1929. However, it was the introduction of the Employee Ownership Trust (EOT) in 2014 by the then coalition Government that is leading to the current explosion in interest. This off-the-shelf scheme makes it hugely easier — and cheaper! — to set up an EOT.

What are the main advantages of employee ownership from the point of view of the company owner — i.e. the person or people selling the business?

The advantages are many. For example, the owner sells to their EOT at market value and gets to leave a legacy. Employee ownership also protects the interests of employees and customers, and employees have the added the motivation of having a voice and receiving profit.

Crucially, however, the payment for the shares comes from future profits, so in that sense an EOT-owned business does not function like a privately owned business. It is therefore crucial that the owner gets the business in the right shape so that it will last forever – or at least long enough to pay off the owner! Hence why my book and online programme are called The Eternal Business.

Oh, and one other thing. Payments to the owner are exempt from capital gains tax.

What sort of response did you have from your employees to the idea?

I thought that they would greet the idea with universal happiness and gratitude. In reality the deeper ramifications of change and being owned by a trust fund take a while to sink in. Now, however, they love it.

What about Ovation Finance clients? How have they taken to it? And, in practical terms, has it made any difference to the service they receive?

The day that we made the announcement, I waited for my phone to ping with congratulatory texts from clients I’d worked with, in some cases for 20 years. Nothing. Silence. And then I realised that was what I had been working towards! You can’t sell a business if you are essential to it. So the response has been 100% positive and clients know that the company is going to be around forever to continue giving them financial coaching, planning and advice.

Companies in all sorts of sectors are opting for employee ownership. Do you think there’s a sense in which it’s particularly appropriate for financial advice businesses?

Although it does work for any business, there are two types that it seems especially right for. The first is those which have a strong sense of purpose — architects have been particularly taken with it, for example. And, because the owner needs to know that the future profits will carry on in order to pay them, it suits companies with strong repeatable income, like IFA businesses.

Tell me about your book, The Eternal Business. What did you set out to do in writing it?

The book exists to raise awareness of this amazing third way of succession planning. It gives owners all they need to decide whether this might be right for them, and then provides a path for owners and leadership teams to follow in order to get their business ready for the transition to an EOT.

How will your online programme help owners?

The programme builds on the model of the book and is split into three courses. Course 1 helps owners firstly decide if the EOT route is for them, and then helps them prepare the ground for involving the leadership team. In Course 2 the leadership team and owner make a few preliminary decisions, before involving all the employees in Course 3.

For £300 a month companies get some 24 modules and about individual lessons to follow the path to get the business ready for the owner to feel able to leave, confident that it will continue to thrive. For £575 a month they can have a cohort version, including one facilitated day per month. Those fees exclude VAT.

Finally, if there’s one piece of advice you would give to an advice business that’s considering employee ownership, what would it be?

Don’t rush. Owners, don’t tell any of your employees what you have in mind until you have decided. The transition to the EOT involves a massive culture change, and this can take years to bed in.

Course 1 of The Eternal Business Programme is now available, and you can buy Chris’s book, The Eternal Business, from Amazon.