Employee Ownership Trusts (EOTs) are becoming a hot topic for business owners. They promise tax advantages, legacy preservation, and a way to reward employees—but let’s be honest, they come with real problems that can derail your plans if you’re not prepared.
Most owners rush into an EOT for the tax perks, only to find themselves trapped in a long, drawn-out exit process. They lose control, shoulder all the financial risk, and realise too late that employees aren’t ready to think or act like owners. This isn’t succession planning—it’s a recipe for regret.
The Problems with EOTs
EOTs, while a legitimate exit option, bring some serious challenges:
- No Incentive for Success: Without a clear ownership mindset, employees won’t align with the goals that matter—profitability and growth. Instead, you’ll be left holding the bag while trying to convince them to care as much as you do. Spoiler alert: they won’t.
- Reactive Strategy: Many owners treat an EOT as an afterthought, focusing on tax savings rather than creating a robust succession plan. The result? A reactive mess with no clear path to sustained growth.
- Risk Falls on You: Transitioning to an EOT means owners often carry the financial burden, facing a long earn-out period while hoping employees step up.
- No Visible Upside for the Business: If employees don’t see tangible growth potential, they’ll treat the EOT as just another job, not an opportunity to build something bigger.
The Ownership Mindset: Turning Problems Into Profit
The key to making an EOT work—and exiting like a boss—is building an ownership mindset before you even think about handing over the reins. This is non-negotiable. Here’s why:
- Alignment: With an ownership mindset, everyone is pulling in the same direction. The goals are crystal clear—boost profitability, grow the business, and create shared success. Everyone is incentivised by the same bottom line, and that’s the kind of focus that drives results.
- Accountability: An ownership mindset creates a culture where employees take responsibility. They’re not just clocking in; they’re making decisions that contribute to the business’s success.
- Retention and Productivity: Businesses with aligned, ownership-minded teams outperform disengaged workplaces by a wide margin. Engaged employees stick around longer, perform better, and, ultimately, increase the value of the business.
The Systems That Make It Work
Creating an ownership mindset isn’t just about talking the talk. You need systems in place to reinforce it.
- Profit-Based Incentives: Ditch the tired bonus schemes that don’t work. Design a self-funding incentive plan that ties rewards directly to profitability and growth. When employees see how hitting targets benefits them personally, their motivation skyrockets.
- Monitoring Systems: Implement real-time tracking and performance dashboards. These systems keep everyone focused on leading indicators—not just lagging results. They provide transparency, accountability, and an instant pulse on the business.
- Functional Management Teams: A strong management team is the backbone of any successful transition. It ensures the business operates independently, leaving no gaps when the owner steps back.
Exiting Like a Boss
Here’s the hard truth: to get the most from your exit and secure your legacy, you need to plan before the EOT process begins. Owners who jump in without a succession plan risk leaving money on the table—and a disorganised business behind.
When done right, an EOT is a win-win. You maximise valuation by presenting a business that’s profitable, scalable, and poised for growth. At the same time, you leave the new owners with visible upside, giving them the confidence to invest and ensuring a faster payback period for you.
A Smarter Way Forward
Exiting isn’t just about selling; it’s about transitioning your business into something sustainable, profitable, and primed for the future. If you’re considering an EOT, start with a strategy to ensure your business—and your people—are ready for the shift.
As a partner to businesses, we can help you lay the groundwork for a successful transition. When the time comes, you’ll leave on your terms, with the valuation you deserve and a legacy you can be proud of.
