employee ownership trust team

We were approached to complete an independent business valuation of a company by a solicitor that we had worked with on several occasions before.  The company had engaged the solicitor as they were looking at using an Employee Ownership Trust as an exit route for the founding directors and shareholders of the company and a valuation of the business for the intended trustees of the trust is a necessary step in the process.

About the company

The company is a successful, well-established business that has been trading for many years with two distinct income streams.  The company develops online training courses for a wide range of different sectors and these courses are sold on a subscription model. This means that they have an element of recurring revenue each year.

The company also designs website content which is animated and interactive. The company has historically been run in a very profitable manner and has a very healthy balance sheet.

There are two directors of the company and as one of them has just turned 60 and the other wanted to start exploring other opportunities, the directors decided to start exploring the possible exit routes that they could take from the company.

The Problem

The company wanted to find a way of extracting funds from the company in a tax efficient way whilst also passing the company onto their employees.

They had explored the possibility of a sale to a third party, but this was ruled out as it didn’t guarantee a future for the employees – the directors of the company wanted to ensure that the employees were able to determine the future of the company as they had made a significant contribution to getting the company to its current position and it was important to the directors that the employees were rewarded.

The Solution

In order to prepare the report to the trustees of the Employee Ownership Trust, we started by carrying out a detailed valuation of the company.  In order to do this, we undertook a full review of the statutory accounts for the last 3 years. We also reviewed the business plan (where the company had set out both its short and long term strategic goals) and considered the impact of the recurring income on the residual profits each year.

We ran through various valuation methods to identify which one was most appropriate to the company, considered the best approach to take given the industry that the company operates in and then prepared our report with our detailed findings.

The results 

The report that we produced was used by the trustees of the Employee Ownership Trust and the independent opinion that we were able to provide about the value of the company proved to be invaluable as part of the transition in the ownership of the company across to the Employee Ownership Trust.

The directors will be working with the company for a period of time yet, but they have a clearly defined exit route and certainty over the value that they will be getting for the business, which has given them and their families, financial freedom.