HOW DO OWNERS UNLOCK VALUE IN THEIR COMPANIES?

One year after establishing our employee owned cooperative, the economy started to improve.  Before this, a significant rationalisation had occurred throughout Australian manufacturing.  Companies either re-invented themselves or closed their doors, but even as economic conditions looked brighter, profit margins were still very tight. 

Trying to value a business that had taken the better part of two generations to create and build was a challenge.  As business owners, we were overly influenced by our personal histories, our sacrifices and the memories that had taken over half a century to accumulate.  We had initially hoped that placing the business for sale on the open market would automatically produce a fair and equitable result for both buyer and seller.  Unfortunately, this was not the case; we found to our horror that no one wanted to buy!

In the absence of a sale, our protracted and tortuous succession process had finally come to a conclusion.  We had transferred full ownership to our employees in the form of an employee-owned cooperative.  Even though the employees successfully acquired the whole shooting match for a minimum price, it catered to their risk-averse ethos.  This was further reflected in the first year of trading when they minimised all expenditure to consolidate their position for the future.  Succession had been achieved.

Succession planning is a complex process for a business owner preparing for retirement.  An employee buy-out in the form of an employee-owned cooperative is an option which should be given serious consideration.

Retiring owners need to achieve a balance between what value is fair to them and what can be sustained and funded by the business over the longer term.  The owner’s personal values will determine what will be achieved.

Value Unlocked at C-Mac Industries (Aust) Cooperative Ltd

The pure transaction didn’t unlock any dollar sale value to the owner as the manufacturing market place was under pressure and flat.

Our family found benefits in other ways:

  1. Receipt of an excellent, guaranteed monthly rental income that was no longer subject to re-investment back into the business
  2. Monthly repayment of the trial year’s unpaid rent, stretching over the subsequent five years (due to the Cooperative’s decision not to pay rent for the 12 month trial period before purchase) provided a regular bonus income for Margaret.
  3. The owner, walked away with no expenses; zero cost
  4. All liabilities and business worries have been mitigated
  5. Legacy was retained, and the family were pleased with the outcome
  6. As a family member and General Manager for many years, I became a member of the Cooperative, working one day a week in marketing
  7. I could still contribute to and influence the Cooperative, keeping an eye on operations as one of the five directors
  8. Provided a socially responsible result and an opportunity to model a concept for other businesses
  9. Released me to champion an alternative Baby Boomer retirement strategy
    1. Enabled me to pursue “Business Chaplaincy” in his retirement
    2. Part-time work enabled me to keep up to date with industry trends and events, keeping well informed and relevant when working as a Business Chaplain
  10. Enabled me to advocate employee ownership to government and business groups

Keeping actively employed, interested, relevant and feeling needed in the workplace, while passing on and documenting my years of accumulated knowledge, removed any feelings of degenerating into a has-been!

“Succession planning is about taking a considered, strategic approach to your business exit strategy; without it, the value of your business will retire with you.” [1]    

31% of business owners expect their businesses to provide an ongoing stream of Income.[2]

If the business owner is in a position where he/she does not have the need or desire to maximise the dollar value of the transaction, negotiating and working with employees on a succession adventure can be far more relaxed.

If an owner has adequately prepared for retirement, it has been found that their life focus may shift to health, education or volunteering, as a means of contributing back to society.  This could potentially be supported by the EO cooperative wanting to adhere to the Seven Principles.

The EO cooperative contract can contain any special conditions that are acceptable to both parties.  As an example, C-Mac was being sold for a minimal amount, and it was agreed that all ongoing costs associated with the sale of the business by the old Pty Ltd company would be borne by the new cooperative.  Such costs included legal expenses, banking fees and a host of other incidental items that would be incurred during the following six months.  This meant that the owner didn’t incur any costs at all during the whole transition process.

Another factor of prime importance is that many owners don’t necessarily want to walk away from their businesses and disappear into the sunset.  There are proven mental and physical health benefits in retirees retaining interest and involvement, but without the stress associated with the cut and thrust of daily commercial life.  A transition to an employee-owned cooperative allows ex-owners enormous scope for tailoring an ongoing role for themselves in the new enterprise.  While at the same time benefitting the new owners with access to their years of accumulated knowledge.  A part-time involvement as a member of the cooperative, maybe one or two days a week, can keep the brain active while enjoying the unique experience of having ex-employees become your new boss!  In my own case, I discussed a one-day-a-week part-time position with our mediator and the new leadership team, and we quickly came to an agreement on my new role and associated authority.  It was a surprisingly easy process.

Benefit to society

Becoming part of the “Business for Good” movement which advocates a new business model designed to address some of the intractable social and economic problems.

MORAL:
  • Negotiate terms of employment and remuneration before you transition your business
  • Money isn’t everything!
  • An Employee Owned Cooperative can be a means of realising your dreams
  • Former business owners can stay actively involved and relevant in an EO cooperative

[1] Peak Partners

[2] CPA Australia – Small Business Survey

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