A personal perspective on employee ownership for accountancy firms

Since transitioning to employee ownership in 2021, we at Sapphire, a contracting and accounting firm, have witnessed firsthand the transformative benefits of an Employee Ownership Trust (EOT).

As managing director, I’ve observed how this structure has profoundly impacted our business, enhancing both our internal culture and our financial performance. But is it the right move for every accountancy firm? Here’s what we’ve learned.

The right fit for accountancy firms?

Employee ownership can be a powerful tool for succession planning, particularly in accountancy firms where the alignment of stakeholder interests is crucial. For firms like ours, an EOT offers a solution that preserves the firm’s independence while ensuring that those who contribute to its success are directly rewarded.

However, the suitability of an EOT for your firm depends on several factors. For instance, firms operating as partnerships or LLPs would need to transition to an incorporated entity to fully leverage the tax benefits associated with an EOT. Additionally, firms involved in regulated activities, such as audit services, face specific regulatory challenges, as registered auditors must be owned and controlled by qualified auditors. This could necessitate restructuring certain aspects of the business, which may not be feasible or desirable for all firms.

Beyond the structural considerations, the financial health of the business is a critical factor. Firms that require significant capital for growth or investment might find the EOT structure limiting, as raising external funding can be more complex under this ownership model. It’s essential to weigh these considerations carefully before making the transition.

Financial and cultural benefits

The financial incentives of an EOT are significant, not just for the exiting owners but also for employees. At Sapphire, our employees are now entitled to 74% of our company’s profits, which positions them to be better compensated than peers in similar roles. This structure has already boosted morale. Things like saving for house deposits or other financial goals which, given the current economic uncertainty may seem daunting, are becoming realistic targets for all our employees. As a result, our retention rates have improved year-on-year, reflecting the positive impact of employee ownership on staff loyalty.

From a broader industry perspective, research has shown that employee-owned businesses often outperform their traditionally structured counterparts in terms of profitability, productivity, and employee satisfaction. This is due to the increased engagement and motivation that comes from employees having a direct stake in the success of the business.

Culturally, the impact has been equally profound. Our move to employee ownership has earned us a three-star ranking from Best Companies, reserved for firms with ‘world-class’ levels of workplace engagement. This recognition reflects the increased satisfaction and commitment we’ve seen across our team, which has been essential in navigating the challenges of a tough economic climate.

Is employee ownership right for your firm?

While the benefits of an EOT are clear, it’s not a one-size-fits-all solution. Firms must consider the complexities and costs involved in setting up an EOT, including legal and professional fees, which can be substantial. Moreover, the process requires careful planning and a willingness to invest time in educating and engaging employees to ensure they understand and buy into the new structure.

It’s also important to consider the potential downsides. For instance, the price of shares in an EOT sale may be lower than in a private sale due to the independent market valuation process. Additionally, it may take longer for owners to receive payments for their shares, as the money is typically deferred over several years.

That said, the long-term benefits, such as improved employee engagement, increased retention rates, and enhanced company performance, often outweigh these challenges. For firms where an EOT aligns with the business’s goals and culture, it can be a powerful tool for ensuring long-term success and stability.

A balanced approach

For Sapphire, the decision to move to employee ownership has been overwhelmingly positive, contributing to growth in our client base, headcount, and revenue over the past three years. However, it’s crucial for each firm to weigh the potential benefits against the challenges.

By sharing our experience, we hope to provide a clearer picture of what accountancy firms can expect from transitioning to employee ownership, helping you decide whether it’s the right path for your business.

For more information, visit www.wearesapphire.co.uk