Insights

Succession should keep customers confident and your team steady. If you want a route that keeps culture and rewards the team while staying financially sensible, you might consider Employee Ownership Trusts (EOTs), a route to an employee‑owned company.

An EOT is a trust that holds a controlling interest in the company for the benefit of all employees. Used well, it lifts engagement and resilience. It also lets founders exit on a timetable the business can fund without starving payroll or reinvestment. This guide shows how Employee Ownership Trusts work in practice and support long‑term health for cash, governance, and your team.

In our work we’ve run feasibility, cash modelling, and post‑deal cadence. Employee Ownership Trusts work best when cash generation is steady, leadership can step up, and reporting and governance stay simple.

If you want tailored advice, see Employee Ownership Trusts or talk to the team via Contact.

What is an EOT and when does it fit?

An Employee Ownership Trust acquires a controlling stake in a trading company. The trust holds the shares for the benefit of all employees on similar terms. Control sits with the trustee board, which acts in the interests of the employee group. Day‑to‑day management stays with the executive team.

In practice, we look for three signs that an EOT fits:

1. Cash generation with headroom. The company can repay a fair price over time and still fund payroll, VAT, and reinvestment.
2. A leadership bench. There are two or more managers who can run operations and sales without the founder making every decision.
3. Customer mix and culture. No single client dominates the P&L, and the team already behaves like owners who care about quality and on‑time delivery.

If one of these is missing, we pause and fix it first. If cash is thin, we strengthen collections and margin. If the bench is light, we develop or hire. If one customer is too large, we diversify before loading debt. That reduces concentration risk, keeps lender confidence high, and protects valuation.

When is an Employee Ownership Trust not a good fit?

If the business needs a strategic buyer for capital, technology, or international reach, a trade sale may be cleaner. If cash is distressed or leadership is not ready to step up, fix those gaps before an EOT. If the goal is maximum sale price and speed above all else, compare a competitive sale or MBO.

What does an EOT improve for business health?

Engagement and retention: When employees know they share in the outcome, they tend to stay longer and care about the levers that move results. Many firms use a simple bonus linked to profit and service quality, so reward follows results customers feel.

Service and productivity: Ownership mindsets encourage teams to fix process friction and protect on‑time delivery. Customers feel the improvement, renewal odds rise, and churn risk falls.

Succession resilience: An EOT reduces key‑person risk because governance and decision rights spread beyond one founder. The model encourages documented processes and a clear operating rhythm, with focused talent development.

How is an Employee Ownership Trust funded in practice?

Most Employee Ownership Trusts blend a vendor loan, a bank facility, and future profits, priced at fair value with a repayment schedule that protects payroll, VAT, and reinvestment.

Here’s how we model repayments: we use a 13‑week cash view and a 12‑month forecast, stress‑test slower receipts and higher costs, set a cash alarm, tighten collections, and control discounting so margin funds the plan.

To keep the business healthy as debt is repaid, we set simple guardrails:

• Maintain a rolling 13‑week cash view with a clear alarm line.
• Tie any price change to gross‑margin logic so repayment does not depend on discounting.
• Keep delivery utilisation at levels that protect service while you grow (we use a 75–80 percent guide).

These guardrails protect service levels, keep cash predictable, and keep the repayment plan bankable. For finance modelling and reporting cadence, see Part‑Time Finance Directors.

What are the new UK rules for Employee Ownership Trusts?

• Former owners cannot retain control after an EOT sale; the trustee must act independently in the employees’ interests.
• The EOT trustee must be UK‑resident at the time of disposal (for disposals on or after 30 October 2024).
• Trustees must evidence a fair, not‑overvalued price at the point of sale under HMRC’s new “consideration requirement.”
• The company must remain a trading company and benefits must apply on similar terms to the whole employee group.

These rules formalise good practice across the UK model, ensure Employee Ownership Trusts operate with clear governance and fair valuations, and strengthen long‑term health by keeping governance clean and managing conflicts.

Governance that protects the model

An EOT introduces a trustee board that safeguards the employee interest and keeps management aligned with the purpose of the employee ownership model. Many companies appoint an independent trustee and set up an employee forum to keep information flowing and give staff a voice.

Here’s how we run governance on Monday mornings. We schedule trustee meetings at least quarterly to surface decisions early and avoid surprises. Management provides a short board pack that covers cash, trading performance, service metrics, and any conflicts to declare. Our trustee pack template covers cash and forecast deltas, trading versus plan, on‑time delivery, open conflicts, and three decisions required.

What happens after selling to an Employee Ownership Trust?

Expect a simple quarterly cadence, a short board pack (cash, trading, service, conflicts), and an employee forum ahead of trustee meetings. Clear roles and clean reporting keep confidence high in the first year.

First 90 days: trustee Q&A with staff, managers owned debtor days and on‑time delivery, and the board adopted a six‑page board pack. Confidence rose as reporting stabilised and working capital became predictable.

What are the tax benefits of an Employee Ownership Trust?

Qualifying EOT sales can offer CGT relief to sellers, and employees can receive up to £3,600 per year income‑tax free (NICs still apply), subject to strict conditions.
 

These incentives come with conditions you must meet and maintain. Examples include the trust acquiring and keeping control, the company remaining a trading company, and benefits applying to the whole employee group on similar terms. You also need to manage conflicts and former owner influence correctly.

These reliefs can improve seller proceeds and let the business share success with the team, which improves retention without lifting base pay. Treat tax as one part of the decision, not the only reason to choose an EOT.

Is an EOT right for you? A quick operator test

How long does an Employee Ownership Trust take?

Most timelines run in months, not weeks. Feasibility and valuation come first, then structure, trustee setup, and communications. The schedule moves faster when management accounts are clean and the leadership bench is ready.

Before you commit, pressure‑test fit with these questions: they prevent a structure that wins on tax but fails on cash or leadership:

• Does the company generate enough cash to fund a fair price over a reasonable period?
• Do you have a second line of leaders who can run the day‑to‑day?
• Can you handle the extra governance, reporting, and trustee interaction with confidence?
• Is customer concentration low enough that the repayment risk stays controlled?
• Would a trade sale or MBO achieve your goals more directly?

If the answers are mixed, compare options and timing. A Business Succession Planning review can map alternatives and timing. A Business Valuation exercise can anchor price and shape funding.

Where Evoke Management fits

Evoke Management provides hands‑on leadership through feasibility for Employee Ownership Trusts, the transaction, and the first year after the deal. We build a clear model for price, cash, and covenant headroom, then set the reporting cadence and board pack the trustees expect. We handle employee and customer communication, so confidence stays high, and we work with the new leadership team to define roles, decision rights, and KPIs.

If you want to explore the route, book a short working session. Bring last month’s management accounts. We will test eligibility, sketch funding, and agree the first governance tasks with named owners, so next week’s actions are clear. Start here: Employee Ownership Trusts.