SCOTLAND is punching above its weight in employee owned businesses – but could do better with more support from the Scottish Government, according to an adviser to the sector.

Stirling-based Ownership Associates has advised 12 companies transitioning to employee ownership so far in 2021 and expects to announce another eight before the end of the year.

Director Carole Leslie has been advising the sector for around 20 years and says more support is needed if the Scottish Government’s ambition of growing 500 employee-owned businesses by 2030 is to be achieved.

“Scotland is punching above its weight in terms of the number of employee owned companies and the pace of transactions that are coming through,” Ms Leslie said. “But it could be doing a lot better.

“There needs to be a real focus on support, on really working with business owners and their advisors to raise awareness of employee ownership, and offer a bit more of that handholding service to help companies navigate the process.”

Ms Leslie said she expected Scotland’s share of employee owned companies to have grown 20% by the year end, from 108 currently to 130.

Companies advised by Ownership Associates that have announced their transition to employee ownership so far this year include Swansons, an Inverness-based food wholesaler; Microtech Group, an Ayrshire IT company; Fife technology firm Lisle Design and TEFL Organisation, the Inverness-based company that teaches English as a foreign language.

A new cluster of companies expected to announce their move to employee ownership in the coming weeks spans sectors including manufacturing, engineering and retail. When businesses are passed onto employees rather than being sold to a trade buyer, it helps to root them in Scotland, Ms Douglas said.

“We've got a problem in Scotland, in that we don’t have enough larger businesses to acquire the really successful smaller businesses,” she said. “So when these businesses go on the market, it's more than likely that the buyer will come from over the border or internationally. And that inevitably means relocation. And it's not just the jobs that go, it's their skills, the opportunities for young people and the quality employment. So although companies might retain a presence, inevitably there’s a negative impact locally.”

Ms Leslie said business owners were often uncertain about how the move to employee ownership would be received, and then are surprised by the level of support from staff, clients and suppliers.

“Advisors like lawyers and accountants will often focus on the tax benefits – that the seller has exemption from capital gains tax and the employees might get a tax-free bonus,” Ms Leslie explained. “But the really big thing that matters to employees is long term security. It's the fact that their job is not going to change very much. And really the most powerful aspect in most of transactions I do is that if the company is ever to sell onwards, then there is often a requirement that 75% of the employees to agree to it. This is tremendous, especially when people can be treated like commodities in a typical buyout, with the name changing over the door, new ways of doing things and downsizing.”

Productivity, engagement and profitability often go up as a result, Ms Leslie said, and supply chains also benefit.

“I'm hearing more and more that companies are getting fantastic feedback from clients,” she added. “Because the other thing that’s avoided is damage to the supply chain when these companies move out.”

Employee ownership has traditionally been seen as succession route for older business owners who want to retire, Ms Leslie said, but this was changing.

“Now I'm seeing far more entrepreneurs who are younger and find employee ownership a really attractive option. Employee ownership isn’t only a positive thing to be doing for staff. It also allows them to stay involved on their own terms.”