Employee Ownership Explained – The role of the accountant in the EOT transaction

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The increasing interest in employee ownership was reinforced on Wednesday 16 September when our webinar attracted over 60 attendees. Dougie Rae, Partner, EQ Accountants has worked on a number of employee ownership transactions and shared his experience in what was agreed to be a tremendously valuable presentation, followed by a lively Q &A session.

The audience was largely advisers, and as the title would suggest, this webinar attracted mostly accountants.  More than half described their knowledge of Employee Ownership Trusts (EOTs) as basic or non-existent. Half had no direct experience of working on an EOT transaction. Encouragingly, more than 60% of advisers who attended said they were likely or very likely to discuss EOTs with their customers following their attendance at the seminar.

Dougie Rae talked through the requirements of the legislation.

To qualify for the Capital Gains Tax relief:

  • The company has to be a trading company, or the principal company of a trading group (Trading Requirement)
  • The EOT must hold the controlling interest in the company (Controlling Interest Requirement)
  • Any benefit must be paid on the same terms to all eligible employees (All Employee Benefit Requirement)
  • The number of continuing shareholders who are directors or employees (and people connected with them) must not exceed 40% of the total number of employees of the company or group (Limited Participation Requirement).

Dougie advised that clearance is sought from HMRC to ensure that the 0% Capital Gains Tax rate applies to the transaction.

The process for valuation is exactly the same as it would be for an external buyer; the difference is that, as a non-adversarial sale, there is no tortuous due diligence process seeking reasons to reduce the price.

The presentation was followed by a comprehensive Q&A session, demonstrating a genuine interest in how the EOT, and employee-owned companies, work in practice.  The questions and answers are detailed below.

Attendees were asked what barriers they believed to be in the way of wider adoption of EOTs. 49% thought lack of awareness is the major obstacle, with 20% believing it’s a lack of leadership capability within the business with15% ascribing the key hurdle is availability of funding.

Feedback from the session has been overwhelmingly positive with 90% of respondents to the post-session evaluation assessing the webinar as Excellent or Very Good.

A recording of the webinar can be found here: 

A copy of Dougie Rae’s presentation is available here: Dougie Rae, EQ Accountants

Questions & Answers

Q: Are the employees required to put funds into the Employee Ownership Trust (EOT)?
A: Not usually.  The EOT can sit alongside a share scheme where employees would have the option to invest, but it’s not usual for employees to fund the transaction to any extent.

Q: Are you seeing the EOT being implemented across any specific sector or industry?
A: No. There is a very diverse range of businesses taking the EOT route, covering almost all sectors, company sizes and locations.

Q: From your recent experience do you find business owners have undertaken sufficient personal financial planning when considering their exit and in light of a low yield environment do they know how best to manage their net proceeds as the transaction completes?
A: Difficult to give an accurate answer. Probably fair to say that most individuals do not invest sufficient time in financial planning and maximising monies raised from a disposal.

Q: On valuation, have you seen the HMRC challenge or request any further detail on methodology/multiples used?
A: As far as panelists are aware, to date there have been no challenges on valuations submitted to HMRC.

Q: On an exit from an EOT, are the net proceeds distributed to employees treated as employment income?
A: Expert advice must be sought.  However, in the three incidences of an exit from an EOT that we are aware of, two resulted in distributions to employees. In both cases, once the Trust had paid any Capital Gains Tax due, this income to employees was treated as coming from employment and therefore subject to Income Tax.  National Insurance must also be paid by both employees and the company at prevailing rates.

Q: Who do you normally see driving the transaction?  Presumably the vendors are pushing the transaction as a means of obtaining a sale?
A: Yes, it would normally be the majority shareholders who opt to do this, and then shape the transaction going forward. The driver isn’t always the sale; often it’s because of loyalty to staff, desire for company to remain in situ, or because seller has plans to remain in business and phase their exit, rather than be subject to targets/tie-ins from new business owner.

Q: Shares/bonus/dividends should be based on factors such as time served or salary. Can you provide some further examples and how this works in practice?
A: The legislation is quite specific in how the EOT bonus can be distributed and companies take different approaches to this.  The implementation of an EOT does not impact on the company’s general remuneration policy; companies can pay bonuses and award shares as they see fit.  Dividends can be paid to shareholders as normal.

Q: How do you see the Scottish Government supporting this and how? Through Scottish Investment Bank or others?
A: All parties within the Scottish Parliament are supportive of employee ownership.  CDS has been a key driver of employee ownership in Scotland, and Scotland is unusual in having a funded, dedicated resource.

Q: Have you seen any transactions where bank funding has been available to support the transaction?  Would this be raised by the company and then gifted to the trust or can the Trust raise debt itself?
A: There is an increasing appetite for banks and specialist lenders to part fund EOT transactions.  It would be usual for the company to take on the loan and gift the cash to the Trust to repay the vendor.  So far, in the experience of the panellists, there has not been an instance where the Trust has assumed the loan.

Q: What if seller’s expectations are too high?
A: It is usual for seller’s ideas around valuation to be quite realistic. However, as with any company sale, a mismatch of expectations might lead to an open and frank conversation about what is affordable.

Q: Is there Corporation Tax deductions for the tax-free bonus?
A: Yes, this is treated as payroll and therefore the sum is deductible for Corporation Tax purposes.

Q: What sort of timescales from start to finish in a typical transaction?
A: 2-3 months would be normal, although some companies take longer if there are multiple shareholders, or business demands that must be addressed first.

Q: Could a hybrid model be good for a family business e.g. 51% EOT and 49% in family ownership
A: The EOT structure is quite flexible and it would be quite possible to combine an employee trust with a family trust or direct shareholdings.

Q: Can an EOT still implement a tax advantaged share scheme such as growth shares or an EMI scheme?
A: Yes, quite acceptable.

Q: If dividends are declared by the trading company, then presumably the EOT then acquires a share of the total dividend pot as well as payments to any original shareholders who still hold a small percentage of share capital?
A: It is usual for the EOT to waive its right to any dividend (as it has no requirement for cash) and this money returns to the company to fund the bonus.

Q: What level of due diligence is typically performed on behalf of the EOT to protect their interest?
A: As the former owner is usually remaining with the business in some form until all money is repaid then any due diligence is normally quite ‘light touch”.

Q: Is there full transparency to all staff of salaries in an EOT and does this cause any difficulties?
A: Although there does tend to be increased transparency around company finances this does not usually extend to remuneration.  Salaries are usually still confidential within most employee-owned businesses.

Q: What is the current level of CDS support to interested parties?
A: CDS offers a fully funded ownership succession review and employee ownership feasibility study to companies interested in exploring whether employee ownership is an appropriate model for them. 

The CDS team is also happy to provide information and signposting to companies and their advisers who may wish to find out more.

Community Owned Businesses- The Journey

There is growing recognition of the value of community businesses, preserving community assets and generating economic value for their communities. COVID-19 has clearly demonstrated the importance of supporting communities to be innovative and take the step towards generating wealth locally, avoiding the return to normal economics.

Community imageIn partnership with the Plunkett Foundation, and Community Shares Scotland, Co-operative Development Scotland ran their second Community Business: Making it Easy event this month providing key insight to the realities of establishing a community business and information about the support available

Brian Connolly from the Co-operative Development Scotland was there on the day and shares his key learnings from the event.

Eleanor Porter chair of  Dunshalt Community Shop was the first speaker at the event and she shared the shops story with the audience. She described their journey as a puzzle, looking to recognise the specific pieces which came together. Initially this consisted of a community recognition of loss through the closure of the local shop, risking both a source of groceries, but more importantly a social hub. Having taken steps to prevent a change of property function, this led to the start of external conversations to take the asset into community hands. Through the creation of a business plan and extensive community engagement, a Community Benefit Society was formed. Calling on funding from organisations like Leader, National Lottery and the Scottish Land Fund, a Community Share Issue created a platform to ensure residents were invested in the use of this space and raised over £31k in two months. Despite opening just before COVID-19, the shop has already become an invaluable asset, quickly providing a delivery service for local residents during lock down.

Dave Hollings, chair of the Dog Inn spoke about the experience of running a community owned pub. He highlighted the role the asset plays in providing a service to the community. Alongside the pub, the facility offers community space both internally and through its gardens. It has become a place of music and celebrations, bringing together residents and helping cement its importance in forming social bonds. Adopting a similar approach, the Dog Inn relied on a Community Share Issue allowing it to refurbish the premises on initial purchase and after only two years, create a return on investment. Importantly, the pub is a key employer locally, with 16 of their 25 staff being young people in the area.

Getting Community Buy-in
Following the case studies, there was a chance to hear from the support organisations in terms of how to undertake this journey and what help is available along the way. The first session explored the role of Community Engagement, recognising the need to invest both time and money in securing buy-in for the community business throughout. The act of pursuing community engagement serves several purposes including assessing local need, allowing residents to have their say, reducing opposition and bringing in volunteers / investors. To effectively undertake engagement, there is a need to firstly identify what we are defining as a community; are we referring to a geography or an interest group? There is often a need to specifically target a demographic group and use different language to reach them. Through the journey itself, there are four key elements:

  • Refining your message: What do you want to say and how do you ensure it is both clear and consistent.
  • Consulting: Using a set of pre-agreed questions, there is an opportunity to weave a story about why you are on this journey and gather contacts from interested parties
  • Engaging resource: The need to establish working groups who can take forward actions and utilise volunteer time as it becomes available.
  • Using the right methods: Whether questionnaires, film making, public meetings or informal discussions, selection of the right communication can be vital in securing the support needed.

Choosing the Right Model
The next session explored the role of Governance with the need to ensure the identification of the right model. The selection of the correct organisational structure for your community business impacts future decisions and development.  There are an extensive range of forms from a co-operative society, a private company (by shares or guarantee), or a community interest company. One of the most common forms utilised is the community benefit society which allows the issue of community shares and ensures a democratic approach to change (with one member, one vote). Equally important in selecting a legal form is exploring the governance with a need for clear constitution and a structure which puts members at the heart.

Raising the Finance
Following this was a discussion on the role of Community Shares as a way to raise money for a community enterprise. This is a method of crowd funding that achieves community ownership This is typically part of a larger funding package bringing in partners such as the Scottish Land Trust etc. This approach has been used in the past to finance projects from shops and pubs to harbour developments and renewable energy. A share issue is a great way to grow membership and ensure community involvement as the project develops. This small video will act as a useful explanation for how you can explore this approach: https://youtu.be/q6w-311GBIM

At the heart of any successful community business is a clear development journey. This enables the project to go from idea to a thriving organisation. Every community organisation is different, yet there is always value in learning from the experiences of others. The Plunkett Foundation have produced an invaluable guide to the steps you can expect to take, including some of the challenges you can expect.

Co-operative Development Scotland, Community Shares Scotland and the Plunkett Foundation work in partnership to raise awareness of community business and the available support in Scotland. If you are ready to move forward, please get in touch and we would be delighted to help you.

Submit an enquiry

 

EMPLOYEE OWNERSHIP IS THE WAY FORWARD FOR CIVIL ENGINEERING CONSULTANCY MHB

Civil engineering firm MHB Consultants has become employee-owned, with 40 members of staff given a stake in the business.

Founded by managing director Hendrie Barbour in 2006, MHB Consultants is an engineering design consultancy specialising in bridge design, civil and geotechnical engineering, temporary works and land surveying. Together with fellow directors Fergus Aitchison and Alistair Gray, Hendrie has grown the firm organically to 40 staff, with headquarters in Glasgow and regional offices in Edinburgh and York. Clients include construction firms, transport agencies, local authorities, engineering consultants and private clients throughout the UK.

Hendrie wanted to plan for his eventual exit over a number of years by considering succession options early, therefore allowing for a smooth transition. The management team wanted a solution that would ensure the business remained independent and retained the company’s strong values and culture.

We caught up with Hendrie to find out more.

“All of us have been involved in building MHB, and we are proud of the successful business that it has become and the team of employees that we have. We don’t want any exit plans to impact what we’ve all built or change the way the business operates and our way of doing things.

“With a planned deal completion date of mid-2020, the arrival of the COVID-19 pandemic created some uncertainty over the timing, however the decision to go ahead was seen as a positive long-term statement and one that would engage staff moving forwards.

“Goodwill from employees is important right now as we must all pull together in the right direction. What better way to do this than with all of us as owners?

“We are all genuinely enthused by the idea that there is a way of transferring ownership without needing to sell MHB to another company and risk destroying what has been built up over the years. We believe that employee ownership will be the start of an exciting new chapter at MHB.”

An Employee Ownership Trust has been formed and holds 100% of the shares on behalf of the employees.  The transition to employee ownership was supported by Co-operative Development Scotland (CDS), with the process managed by Co-ownership Solutions LLP and legal services by Lindsays.

If you’d to know more about employee ownership and how it could help your business, please get in touch with us here using the ‘expert support’ option.

MHB Directors L-R Hendrie Barbour, Alistair Gray and Fergus Aitchison.

MHB Directors L-R Hendrie Barbour, Alistair Gray and Fergus Aitchison.

 

Key advice for setting up a community business

Earlier this year Co-operative Development Scotland were part of a group that organised and hosted an event called Community Shops & Pubs: Making it Easy. The event was designed to enable communities take action to secure the future of their local shop or pub by helping them to better understand what projects of this nature entail and the support that is available to them. This was a fantastic event was well attended by community groups from across Scotland who were able to access advice on fundraising, governance and community engagement. Attendees also had the opportunity to speak to those already running community businesses and to learn from their experience.

On the day we caught upGillian Kirton with some of the speakers from the event to find out what key bits of advice they would give to community groups considering setting up their own community business.

Gillian Kirton, project manager for Co-operative Development Scotland was there on the day and shares some of the key insights.

You can also hear directly from them in our latest video.

  1. Ask for help– Linsay Chalmers- South Cowal Community Enterprises.

South Cowal Community Enterprises joined the line-up of speakers on the day to share their experience of taking over the local shop and post office on behalf of the local community. She identified two key pieces of advice for groups considering doing similar. The first is to ask for help.  There are lots of groups out there that you can have initial discussions with who can help get your idea of the ground or sign post you to the right support organisation for your community’s business needs. Her second piece of advice is to visit other similar organisations as this is a great way to hear first-hand about the practicalities of running a community business.

  1. Learn from others– Chris Cowcher- The Plunkett Foundation

Chris is part of the Plunkett foundation who are the lead organisation in helping rural communities across the UK address their needs through community business. Chris recommends speaking to other similar organisations so you can learn from their experience. Plunket have made this easier by producing a map of community businesses throughout the UK so those who are new to this type of venture can identify similar organisations close to them to get in touch with. The Plunkett Facebook groups are another way to access expertise from existing organisations (https://www.facebook.com/groups/communityshopsnetwork/  https://www.facebook.com/groups/communitypubsnetwork/

  1. Choose the right legal structure- Suzanne Orchard Co-operative Development Scotland

Suzanne is part of our team at Co-operative Development Scotland and the advice she gave on the day was about taking the time to choose the right structure for your organisation. There are different types of community businesses and it isn’t unheard of for the wrong model to be put in place which can then result in you facing barriers further down the line. By accessing the support mentioned and doing your research, you can identify the right option for your community and be best placed to achieve your goals.

  1. Just go for it- Catherine McWilliams, Development Trust Agency Scotland

Catherine took the opportunity to highlight how successful community shops and pubs are. Community shops have demonstrated a 96% success rate and at the time of the event no community pubs were known to have failed. If you have ambitions to develop a community business, then you’ll never know unless you try!

Our next Community Business: Making it Easy event takes place 2nd September. Find out more and register here.

Co-operative Development Scotland is the arm of Scotland’s enterprise agencies that supports business growth through employee ownership and co-operative business models. If you would like to find out more about community co-operatives visit our web page.

There are lots of different ways to go about setting up a community business and a community co-operative is just one option. If you are not sure where to begin, get in touch with us and we can talk you through our support and sign post you to one of our partners if their support better meets your needs.

Partners: Plunkett Foundation Community Shares Scotland, DTAS, Co-ops UK

 

Glasgow Canals Co-op

As we continue to Celebrate Co-ops Fortnight, we thought it was the perfect opportunity to catch up with Co-operative Development Scotland client, Glasgow Canals Co-op. Anna Young, Project Manager for the organisation, took part in a Q&A with us so we could find out a bit more about the Co-op, its purpose and how they #KeepCooperating.

Tell us a little bit about yourself and what attracted you to the role in Glasgow Canals Co-op.
Anna YoungI’m Anna Young. I’m the Project Manager for the Glasgow Canal Co-operative and have been working with the organisation for just over a year. I was attracted to the job because I’m interested in the regeneration of the canal waterway, particularly the role that arts can play in bringing it to life, and I’m keen to support its development and use as an asset for the community. It is an incredibly varied job and I work alongside numerous creative businesses at The Whisky Bond which is located right by the Forth and Clyde Canal near Speirs Wharf.

What do you like about working for a co-op? How does it vary from other organisations you have worked for in the past in terms of culture and purpose?
The Co-op has 25 member organisations who are involved with heritage, sports, arts and the community. This includes grassroots organisations and national bodies and makes for a really dynamic and diverse mix of people and skills. The organisation has been shaped by its members and is very much member led.  Prior to this role I worked for West Lothian Council for many years, so this is quite a change in terms of the set up, but the collaborative working approach is the same.

Can you tell us a little more about The Glasgow Canal Co-operative?
The Glasgow Canal Co-op was formally established in early 2018 and aims to ‘unlock the potential of the canal to create a vibrant neighbourhood for people to live, work and visit.’  Our area focuses on the stretch of the Forth and Clyde Canal between Port Dundas and Firhill Basin. The area is a real hub for innovation and creativity and the Co-op was formed to help it thrive.

Many fantastic projects, events and activities had been delivered around the canal prior to the Co-op setting up and Scottish Canals has regenerated and developed significant parts of this canal section and continues to do more. The Co-op was developed to strengthen connections between canal-based organisations and encourage people to work together to help shape the area’s growth, and to help deliver events, secure ongoing funding and further promote the canal area.

 Members include organisations with a national remit including the National Theatre of Scotland and Scottish Opera, incredible sports venues such as Pinkston Watersports and The Loading Bay Skatepark.  This is in addition to the Hamiltonhill Claypits Local Nature Reserve Management Committee, Glasgow Sculpture Studios and Agile City to name just a few. Each bring unique experiences to the table and through regular meet-ups and working groups we share ideas and offer mutual support.  Our setting, on the Forth and Clyde Canal, is a wonderful asset with a rich heritage and is a tranquil space close to Glasgow city centre and a green transport link.

Glasgow Canals Co-op

 

What have been the key successes to date for Glasgow Canal Co-op?
Some of our most recent projects include rolling out skills training programmes so our members could access the learning and support they needed to progress their business activities. We have worked closely with Glasgow City Council over the past couple of years to support the delivery of a successful National Lottery funded Great Places project. This has been a really positive scheme that has kick-started many pieces of work around our canal area including the development of a Canal Cultural Heritage and Arts Strategy plus support to deliver our annual Glasgow Canal Festival. It also enabled us to recruit our PR and Digital Officer which has been instrumental in raising the profile of the Glasgow Canal.

This has also allowed us to award funding to a number of smaller local projects which will all celebrate what the area has to offer and make the canal’s heritage easier for people to access and learn about. There are some brilliant projects in the works from community pottery and cookery to boat taxis and trips.

The Canal Co-op puts on and coordinates the Glasgow Canal Festival. This event is an opportunity to celebrate the canal, the community and the assets that are here. We plan a day of arts, sports, family fun and nature for all which takes place along the canal every year. Through the festival many members, such as Carnival Arts, come together to support the development and delivery of the programme.  We work with many local charities such as Free Wheel North and Bike for Good and strive to make the event as accessible as possible.  Unfortunately, like all summer events we had to postpone for this year, however we are hoping to deliver a couple of smaller events closer to autumn instead.

What are the plans for the Co-op in the short and long terms?
We have recently secured funding from Scottish Enterprise which will support our sports venues, The Loading Bay Skatepark, Glasgow Wake Park and Pinkston Watersports, to work together to develop a shared digital platform offering bookable visitor experiences.  This will help to strengthen their offer so we can reach out to a wider leisure audience. It will also help to raise the profile of the Glasgow Canal and its many other assets.

Longer term, we will continue to work on projects which raise the profile of the canal as an accessible place for the community, for events and to visit and work. 

What does working together allow you to do that couldn’t be achieved by the individual co-op members on their own?
The value of collaboration cannot be under-estimated.  It allows us to share ideas, pool our resources, support one another, and strengthen our offer.  The breadth of knowledge and skills within our organisation is immense and members are quick to share their own experiences for the benefit of others.  It is nice to be part of something and work with organisations that adopt a similar ethos to your own.  Becoming a Co-op enabled members to formalise their activities and this has also made it easier to access funding.

The impacts of COVID-19 have been far reaching and unprecedented. During these difficult times we have seen amazing examples of people pulling together to support each other thought the crisis and it is these stories that Co-ops Fortnight 2020 is shining a light on. Has being a co-op at this time been of benefit to you and how has being part of a co-op helped the businesses involved?

It has been an incredibly difficult time for so many people including many of our members and there have been some heart-warming examples of our members working together to support the community during this period. For example, Glasgow Sculpture Studios and Queen’s Cross Housing Association have developed a new creative programme called Sculpture Club at Home.  People can join in with free creative workshops enabling families time to spend time together, get creative and stay connected. Craft materials and worksheets are delivered to locals through Queen’s Cross Housing Association and anyone can join in online.

To find out more about collaboration and setting up a consortium co-operative visit: https://www.scottish-enterprise.com/support-for-businesses/business-development-and-advice/work-with-other-companies

 o find out more about Glasgow Canals Co-op, please visit: https://glasgowcanal.com/

Co-ops Fortnight 2020

Over the next two weeks we join our partners in celebrating Co-ops Fortnight. COVID-19 has left us facing extreme challenges for both public health and our economy, but positive lessons are being learned during this crisis, and we all want to harness this new culture of co-operation to change society for the better. Looking at this year’s theme of #KeepCooperating we caught up with Darah Zahran, team leader at Co-operative Development Scotland to get her take on why co-operatives will play a key part in our economic future.

Portrait of Darah Zahran, Social Economy Manager at Scottish Enterprise. Taken 22-03-19

“Among the sector, the benefits of co-operative business models are well known. Built on their values, co-operatives don’t aim to make profit for investors and disconnected shareholders but place at the heart of what they do a set of principles including democracy, concern for community and distribution of wealth to benefit all members. Interest in co-operative and other inclusive business models such as social enterprises has steadily been growing for some time but the arrival of COVID-19 has fast-tracked these models into the spotlight with employees, and employers alike looking for ways to do business better.

COVID-19 has been first and foremost a health crisis, and one which has demonstrated how closely interlinked our public health and economy are. The full scale of the economic impact will not properly be understood for some time but we know that protecting public health has led us into a period of economic downturn which will have serious implications for the population globally for the foreseeable future. This crisis is devastating, and it highlights many lessons to be learned about the way we have allowed our economy to determine our wellbeing.  Now is the opportunity to change our mind sets and recognise that we can change our approach so that the economy better supports public health. Scotland has declared its priorities for a wellbeing economy for some time and now we have the opportunity to embrace what that actually means and build a fairer and more resilient way of doing business.

Co-operatives are known for their resilience. A report recently published by Co-operatives UK reveals co-ops have almost double the chance of surviving the first five years with 76% of co-ops still operating after five years compared with 46% of all new companies. These co-operatives are more agile and adaptable and are able to provide local solutions to this current crisis and, by putting democracy, equality – and particularly social and environmental impact – at the core of their existence, they should be recognised as part of the solution for a future wellbeing economy .

Stories of resilience directly related to COVID-19 have started to emerge from the sector. Never has the role of the community shop been so important and we have seen examples of Community owned shops working extremely hard to ensure supply chain resilience and that their communities can access the supplies they need. Crunchy Carrot in Dunbar and Dunshalt community shop are both excellent examples of this.

This momentum is continuing to grow, with North Ayrshire Council the first Local Authority in Scotland to launch a Community Wealth Building Strategy. Co-operative Development Scotland are excited to be part of this partnership by providing support on inclusive business models such as co-operatives, employee owned businesses and social enterprises. We see this as a very practical response to the economic crisis we are now in and a solution to create local wealth and embed fairer working practices through well-established models that largely reflect and respond to local economic issues on the ground. It is exactly the kind of response needed in the current climate as we aim to Build Back Better.

2020 will no doubt go down as one of the most challenging years we have all faced for many reasons. But we have an amazing opportunity to change and build inclusive values into the mainstream and avoid a return to business as usual.  As we embrace a busy year ahead, we are here, ready to advise, assist and support more co-operatives get off the ground.

To find out more about Co-operative Development Scotland, visit our home page.

Introduction to community co-operatives

As our thoughts turn to what our economy will look like post COVID-19, there are calls not to return to business as usual. There is an opportunity to create a fairer and more democratic alternative to what we’ve had in the past and community wealth building and co-operative business models will play a key role in that.
Suzanne OrchardIn our latest blog, we catch up with Suzanne Orchard, our specialist advisor for co-operatives to find out more about community co-operatives and why communities in Scotland are turning to this model to both safeguard vital local assets but also to generate economic benefit for the areas they live in.

What is a community co-operative?

A community co-operative is a type of community enterprise which operates primarily for the benefit of the local community.

Sometimes people from a community will come together to save a valuable local business or amenity facing closure, often the community shop or pub. It could also be an essential local facility facing closure and we have had an example of a community in Scotland who used the model to save their local school (Strontian Primary School). There are also examples of developing a business or project that offers fresh economic, social and environmental benefits such as Glenwyvis Distillery.

How are community co-operatives run?

Community co-operatives are controlled by their members – individuals from the local community who have invested in the enterprise through the purchase of community shares. All members have an equal say in decision making, regardless of how much they have invested. The profits may be invested back into the business or distributed among members but one of the defining characteristics is that the business is sustainable and does not extract large amounts of profit.

The survival rate of co-operatives indicate how well these models can work. Overall – 80% of new co-operatives are still trading after five years compared to 44% of new companies (Sources: comparing Office for National Statistics data with Co-ops UK’s datasets). Community shops and pubs in particular do very well with a survival rate of 94% and 100% respectively (Source Plunket foundation). The importance of local shops has been highlighted by the current COVID-19 crisis. With local shops proving vital lifelines to their community, it is anticipated that interest in community co-operatives will continue to grow if these amenities are deemed to be at risk.

What support is available?

If you are interested in setting up a community co-operative, Co-operative Development Scotland can provide support to help you talk through your ideas and decide the best way forward at the initial stages. We provide support to setup a community benefit society if you decide this is the right model for your community enterprise but we work with a number of partners including Community Shares Scotland, the Plunket Foundation and Co-operatives UK to help you access the support and expertise you need which ever model you opt for.

To find out more about our support for community visit our website www.scottish-enterprise.com/community-co-ops

 

Employee ownership in Scotland continues to flourish

Although the effects of COVID-19 are still being felt across the globe, there are good news stories coming through and in our new blog article Clare Alexander, head of Co-operative Development Scotland discusses these in more detail along with what is happening in the employee ownership sector.

AquascotI was delighted to hear how well the sector is responding to the COVID-19 crisis with staff from employee-owned Collective Architecture printing PPE parts for the NHS on 3D printers and Alness based employee-owned Aquascot donating fresh fish to vulnerable members of their community as well as sourcing materials used to make PPE for healthcare workers.

It was also a tremendous month for awards and award nominations.

EmployQA-logo-print_international_trade-SmallGray-300x300ee-owned Woollard & Henry Ltd. were awarded the prestigious business accolade of Queens Award for International Trade 2020. This was the second time they have achieved this honour and demonstrates the continued success of employee owners who embrace new opportunities, adapt and learn the new skills necessary to complement their new product and service offerings.

I was pleased to see employee-owned businesses recognised in this year’s IoD Scotland Director of the Year Awards. Congratulations to Colin Wade from Chemco International who is a finalist in the International category and to Niall MacDonald previously with Aquascot who is a finalist in 2 categories; Large Business and Regional Director for Highlands & Islands. Good luck for September!

Finally, I was thrilled to see the results of the RM2 Partnership employee ownership trust (EOT) Survey 2020 which showed not only a substantial growth in EOTs for 2019, to a total of 314 new live EOTs since the introduction of the Finance Act 2014 but also that Scotland is continuing to punch above its weight in relation to EOT companies.  Scotland has around 5% of the UK business market but over 15% of the EOT market.

EOT survey 2020

To learn more about employee ownership and whether it could be right for your business, check out our resources page, listen to our podcast or get in touch with us here.

A Message From Co-operative Development Scotland

As we feel the unprecedented effects of COVID-19, the team at Co-operative Development Scotland want to offer our support in this incredibly difficult time to our clients.

The changes we have seen to every aspect of our lives at the moment may be overwhelming, but we would like to do what we can to help you with the immediate challenges your business or co-operative may be facing by signposting to the network of support available from the government and key partners. Links and details about support available are listed below.

We are part of Scottish Enterprise who are developing a single, joined up response across Scotland’s enterprise agencies. The agencies, Business Gateway Services and local authorities are coordinating the response alongside the Scottish and UK Governments, business organisations and industry bodies. To access the most up to date guidance and support, please visit:

Scottish Government Find Business Support Website 

We would also recommend you sign up for regular updates from this website.

Support for Employee Owned Businesses

Our partners at the Employee Ownership Association are providing tailored support to employee-owned businesses in relation to the impact of COVID-19. They have created a hub detailing support and are hosting regular webinars addressing specific business needs:

EOA Hub

Support for Co-ops

Co-operatives UK are also working to provide tailored support for co-operatives. Their advice pages collate a range of practical guides and guidance for co‑ops including a dedicated HR section. They are also hosting regular webinars which can be accessed through the same pages.

Co-operatives UK Advice Pages

Support for Community Co-ops

The Third Sector Resilience Fund is a £20m emergency fund for charities, community groups, social enterprises and voluntary organisations working in Scotland. The fund will support organisations that already deliver services and products but find themselves in financial difficulties directly as a result of the coronavirus pandemic. This fund may be accessed by some community co-ops:

Third Sector Resilience Fund

Kind regards.

Co-operative Development Scotland

Covid-19 business support

 

CELEBRATING WOMEN IN EMPLOYEE OWNERSHIP

Angela Wardrope hi res

Research carried out by Women’s Enterprise Scotland shows that the contribution made by female-owned businesses to the Scottish economy continues to grow. The GVA of the sector grew from £5bn in 2012 to £8.8bn in 2015 – a 76% increase – while it is now responsible for creating 231k Scottish jobs – up from 153k in 2012.We have also seen a rise in the number of female-fronted businesses in the employee ownership sector, with several of the businesses transitioning to employee ownership being owned or run by women.

We caught up with Angela Wardrope, a project manager at CDS, to hear more.

“In the past few years the employee-ownership community has welcomed a number of new businesses being led by women. Last year saw Shetland-based ESPL Regulatory Consulting (ESPL), headed up by founder Dr Helen Erwood, make the move. A unique business providing regulatory services to the life sciences and pharmaceutical / medical device industries, protecting the company’s well-earned reputation in its highly specialist sectors was one of the reasons behind Helen’s decision.

“It was also a good way to protect the company’s best interests and recognise the talent and dedication of the staff. The team are now looking forward to continued growth under the new ownership model, while Helen has a plan in place for when she decides to step back from the business.

The ESPL Regulatory Consulting team at their Shetland location.

The ESPL Regulatory Consulting team at their Shetland location.

“Another female-led business to adopt employee-ownership in recent years is Doune-based Harvey Maps, a professional mapmaking service for orienteering. Founded 40 years ago by Robin Harvey MBE and Susan Harvey MBE, it is one of a very small number of companies in the UK to generate its own map data, becoming a market leader in maps for outdoor pursuits.

“As Susan considered her exit strategy, she felt it was important that the business they had built up over the years wasn’t swallowed up by a competitor. She decided that employee ownership would give the company the best chance of continued independent existence and success, while retaining jobs locally. The employee buyout saw ten staff given the opportunity to become owners.

“In 2017, Glasgow-based digital and design agency P4P Creative became employee-owned after co-founder and managing director Avril Tait made the decision with her partner and fellow founder Nigel Boyd to safeguard the company’s future should anything happen to them. The thought of someone else coming in and changing things after all the team’s hard work was unthinkable and so she approached Scottish Enterprise about their options. She was referred to CDS, and after some research and meeting other businesses who had been through the employee-ownership process, she felt it was the perfect fit.

“Although the employees’ input had always been valued when it came to business decisions, Avril feels employee ownership creates an even better environment for the team to create their best work.

“Also in Glasgow, architectural practice Page \ Park is led by Karen Pickering, who was appointed as its chair of the board of directors after it became employee-owned. Having served 28 years with the company, her energy and drive to ensure the best possible projects outcomes has continued in her new leadership.

Page \ Park Architects

Page \ Park Architects

“She states that becoming employee owned boosted productivity and increased engagement among staff – team members are no longer ’wage earners’, they are ‘company owners’ and that has brought about greater energy, drive and pride – a great endorsement of the employee ownership model.

“One of Scotland’s most prominent employee owned businesses being run by a woman is Arran’s award-winning Auchrannie Resort. Established by Iain and Linda Johnston in 1988, it became employee-owned in December 2017, with 160 members of staff becoming owners. Linda has led the company as managing director and board chair since 2010.

“With two 4-star hotels, 30 5-star self-catering lodges, two leisure clubs, three restaurants, an ASPA spa and Arran Adventure outdoor company, Linda and Iain had cultivated a hugely successful business. When considering her succession options, it was important to Linda that the ethos of the company, the existing team, and the community use of Auchrannie’s facilities for the future was protected.

“Those were the drivers in deciding that employee ownership was the way forward for the company, and the new ownership structure means that her team now plays a huge part in shaping and influencing the future success of Auchrannie.

Auchrannie 1

The Auchrannie team

“Employee ownership has great potential to help drive economic growth and create greater wealth equality in society. It’s great to see these successful, female–led businesses thrive within the sector, and we look forward to seeing the number of women in the employee ownership community continue to grow.”

If you have a question or you want to talk about how employee ownership can help you, please get in touch with us here using the ‘expert support’ option.