Owners of financial advisory firms are able to build a sustainable business, one that they can leave to their employees, using an Employee Ownership Trust (EOT), according to Ovation Finance founder Christopher Budd.
Speaking at the 2018 Financial Planning Symposium hosted by the Personal Finance Society (PFS), Budd stated that EOT will allow business owners to retire from the business while it can “carry on without you”.
“The truth of virtually every single business deal that has ever been done is that the future comes from the future profit of the business. This means that the business will have to continue without you.”
EOT is an indirect form of employee ownership in which a trust holds a controlling stake in a company on behalf of all its employees, and provides an incentive for owners to sell a controlling stake in their business. The owner of the business sells the controlling stake to the trust, and once the payment has been made to the previous owner, the profit is then divided and distributed among the employees.
The scheme was introduced in 2014 and, while millions of companies have looked at EOT, just 280,000 have completed the process.
At the symposium, Budd argued that exiting the business through the trust allows the owner to “look after their employees”, while also ensuring that the business continues and also securing their future financially.
“Many management buyouts do not work because, first of all, many employees will not have that sort of money, but also I cannot choose just those that do have money,” Budd said when discussing management buyouts.
He argued that the disadvantage of simply choosing to sell to an employee that does have the available funds for the buyout could result in someone who either lacks knowledge or experience in running a business being in control.
“If I were to sell my company to corporates, or a consolidator, my business would disappear. I would also have to question the future of my employees and whether my clients are being looked after in this scenario.”
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