Why Debt Reduction is Important prior to employee ownership
Updated: Apr 19
Preparing for employee ownership
When selling your shares to an employee ownership trust, the EOT acquires the shares using a combination of bank finance and/or vendor loan notes. In most instances, the entire consideration is funded by vendor loan notes. If there is excess cash in the company, this can be utilised to make an initial tax free payment on completion.
If your business has a low debt ratio at the time of transition to employee ownership
it will be in a healthier position. Company owners aren't always aware that share sales are debt free, meaning that in 99% of transactions the departing shareholder(s) are left to settle/refinance some of the debt their business has been carrying. If your business has a high debt ratio it can significantly reduce net sale proceeds.
Allowing enough time to reduce debt well in advance of transition to employee ownership should be part of your exit plan, meaning you walk away with more of the sale proceeds on completion.
Call us on 01384 274 778 / 075 888 925 88 to discuss or go ahead and book a free consultation to discuss your options.
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