Maybe more than any other business sector, creative agencies are driven by their people. Keeping these people happy, and getting the most out of them, is therefore imperative for the business’ success. One way that many agencies are choosing to do this, is by transitioning to Employee Ownership.
What Employee Ownership for Creative Businesses Looks Like
Becoming “employee owned” means an employee ownership trust (EOT) is created and buys the shares from the existing owners. As the EOT is setup with all employees as beneficiaries, any value built up in the business is effectively for the benefit of all employees.
Agencies of all sizes can become employee owned – whether there are 5 or 5,000 employees, an EOT can purchase the business from the owners.
The most common way of the sale being financed is through a combination of existing cash in the agency, and future profits of the agency, with the owners deferring a portion of their sale proceeds over the next few years.
Why Creative Business Owners Are Choosing Employee Ownership
More agency owners are deciding to become employee owned for a number of reasons:
- It can be a tax efficient exit as the owner can receive up to the market value for the company from the EOT, with the potential to pay reduced capital gains tax compared to if they sold to a third party buyer.
- As the existing management team will still be running the business, the culture built up by the owner is retained, as there is no third party coming in to take over and disrupt the status quo.
- It creates a securer future for the agency they have worked hard to build up over the past years (or decades) when compared to a third party sale. An EOT is setup to act in the best interests of the employees, whereas a trade buyer may be looking for synergies or short term savings, which inevitably can lead to job losses.
The Business Case: Benefits for Creative Companies
The benefits to an agency from becoming employee owned can include:
- Maintaining its great culture – something which is particularly important for creative businesses. If staff are unhappy or dissatisfied in their work they are unlikely to work collaboratively or produce the greatest content. Keeping (and growing) a great culture is therefore vital for their success, and employee ownership is a way to structure the business to protect that culture.
- Figures from the Employee Ownership Association show that employee owned businesses tend to be 8-12% more productive than non-employee owned businesses.
- Research from the University of the West of England shows that individuals at employee owned businesses are less likely to feel alienation in the workplace, and therefore are more content. This support the statistic that attrition rates for staff at employee owned businesses tend to be lower.
- A more stable workforce means its easier for the business to maintain relationships with its clients, as clients get the same great service from the same great employees. The reduced chance of an employee leaving also reduces the chance that a marquee client they have that relationship with will leave the business.
Our Experience: 9 Years as an Employee-Owned Law Firm
As well as having worked with numerous creative businesses on their EO journeys, Stephens Scown has also been on its own EO journey for the past 9 years.
Not only do we understand the legal process for a business becoming employee owned, we have lived through it ourselves and so understand the cultural side of a transition which is so important for any agency. Click here to read about our journey to becoming employee-owned.
If you’re thinking about starting your journey to becoming employee-owned then get in touch with our team who will be able to offer support.