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Why an Employee Owned Structure?

After operating a non-hierarchical small practice for 6 years, I made the jump and offered a share gift of 2.5% to the three long term team members I had been working with for yearsSince then, we’ve adapted the business to suit this change and continued to learn and grow how to run an employee owned small business.  Why did I do it, and what did I learn?

The seed of the idea when I started Maytree Studios was to create a safe place for myself, my future employees and my clients.  A place where beautiful buildings could be designed and built in a positive, nurturing environment rather than a combative or competitive environment. 

The practice is deliberately not named after me.  I always intended to bring people along with me – talented people who would otherwise start their own practices.  I recognised that while money matters, things like autonomy, transparency & accountability are all factors that make us happy in our work.  And while I built Maytree from the ground up, they were things I could offer before I could offer more in the way of financial return. 

After operating a non-hierarchical small practice for 6 years, I made the jump and offered a share gift of 2.5% to the three long term team members I had been working with for years.  Since then, we’ve adapted the business to suit this change and continued to learn and grow how to run an employee owned small business.  We’re a work in progress! 

Why did I do it?

If you google ‘what are the benefits of an employee owned company’ you’ll get the true (but not surprising) answers below:  

 1. Employees will care more about what happens to the business

 2. Higher retention of staff

 3. Improved productivity and effectiveness in their work

 4. More innovation

 5. Stronger and better client management 

Before I launched the share scheme, I knew points 1-5 fairly intuitively.  And honestly, they’re enough of a reason to take the leap!  For me, the drivers were more personal – establishing an employee owned business wasn’t just good business – it provided the comradery I love, and aligned with my values around business and money.   So what were my reasons?

 1. Running a small business can be really lonely. 
The ups and downs of business, cashflow, profitability and big decisions can mean you feel really isolated.  I’ve always found real comfort in being able to sit down with my team and sound out some big decisions and hear their perspective.  My team don’t always agree with me – it’s one of the things I love about our work culture.  Polite disagreement is a fantastic way to get to a better outcome.  For me, having these committed people who care about the trajectory of their workspace, gives me a lovely sense of comfort & confidence.  And yes, you can get that with committed employees.  But it takes it to another level when they’re directly influencing the direction of the business they own a stake in. 

 2. I’m a mum and I need to be able to sleep at night
Whenever we do the annual benchmarking process offered by the Institute of Architects, the same outcome comes out – “your wages & salaries are too high relative to your turnover”.  This has never really bothered me.  The business has never made wild amounts of profit, but we’ve weathered 10 years and are in a healthy position.  I have two boys – 4 and 6 at the time of writing.  Unlike many of my colleagues, I haven’t built the business around cheaper student and early graduate staff.  That is a great model for someone who doesn’t have to breastfeed, do school pick up, care for ageing parents, volunteer at kindy or manage a household.   

A co-ownership model secures highly skilled, excellent people who are as committed as me to our client’s outcomes.  Sure, the buck stops with me as the director, but lowering my personal risk and stress by outsourcing chunks of my role has never been something I’ve regretted. 

For me, the drivers were more personal – establishing an employee owned business wasn’t just good business – it provided the comradery I love and aligned with my values around business and money.  

3. Making lots of money off the talent & hard work of other people has never appealed to me 
Yep, I’m a terrible capitalist.  I’m happy to take home a modest pay that is in line with what the rest of the team earn, and all work towards a healthy dividend at the end of the year.  I think the people putting in the time, putting clever problem solving and wonderful client management to use, should see the reward for their work.  If they don’t – and they’re good at what they do – they’ll just move on.  Profit sharing is a wonderful way for people to see the benefit of their innovation and efficiency in their work. 

4. I really love the people I work with and want to see them succeed 
My team have become my very good friends – I love going to work and spending time with these interesting, funny, intelligent people.  We don’t spend a huge amount of time together outside of work – but you’ll see us all at each other’s weddings, birthdays and baby showers.   

Because of this, I’m very interested in seeing my team succeed personally and professionally.  Because they are co-owners, Maytree has found ways to support remote work, plan for parental leave and create meaningful roles for part time workers.  Just like any small business owner, the trajectory of Maytree needs to fit and suit them as their lives evolve, and they need to have the power to adapt the business to meet their needs.  

So what were the steps to get there? 

Massive caveat here – I’m no expert on financial structures.  So my first step was to talk to my accountant about what I was looking to achieve.  At the time, there were four of us in the business; those who had been there forever (me), to our newbie, at around four years service.  We were all really close and everyone was already pretty invested in the business personally.  At the time, I didn’t really anticipate the growth Maytree has seen and this was probably my first mistake!   

Co-ownership models can be an excellent way to create succession planning as well as direct how the business will grow.  So my big tip before you get started?  Think about where you want the business to go over 5-10 years and get the right structure for that. 

Because of my approach, we have gone with two models:

 1.  A formal shareholders arrangement – shares have to be valued & sold for people to buy further into the business.  This is an expensive approach because every time shares are changed it requires the input of legal and accountant advice.  This structure  reflects the leadership of the original four – but we now need to adapt this to suit the growing business and new team members.

 2.  The second model we are adding is a trust for the benefit of all employees (shareholder or not).  This means, if you are a casual, part timer or long timer, everyone gets the benefit of this trust for the period of time they work at Maytree.  For us, this trust will hold 20% of the company – I say ‘will’ because this is underway now and comes into effect start of the 2023/24 financial year. 

For the shareholders agreement and accounting related to these changes, you can expect to spend around 10K.  The shareholders agreements can seem fairly overwhelming for anyone not familiar with legal documents.  We paid for a lawyer and accountant to spend time with our team explaining the process, risks and opportunities and of course, people were encouraged to seek their own advice. 

We’re into our second financial year of the employee ownership structure. Overall, it hasn’t created any more work or complexity in terms of the financial reporting of the business.  We’re still working our way through things – particularly in arranging a simple process around accountability and voting for how profit is spent.  

Top tips: 

  • Plan for the growth of the company – how can this structure provide leadership models and succession planning? 
  • Think about how open you’re happy to be about money – this won’t suit people who are shy when discussing money – this flourishes with transparency and accountability. 
  • Consider whether the initial ‘buy in’ is gifted or bought.  Some architectural staff may not have the capacity to buy in, but a gift of a small percentage can be a great way to retain valuable staff. 
  • If you do gift some shares, you will need to set aside the tax on the value of the sale of the shares – it doesn’t matter if no money changed hands – its calculated as income against the shareholder selling/gifting the shares. 
  • An employee ownership structure needs accountability.  Consider modifying your financial reporting to 6 monthly financial reports to all employees. 
  • At the end of each financial year, you’ll need to decide what money is set aside for savings, asset purchases and dividends.  I recommend looking at a voting process for this.  For Maytree the four main shareholders and the practice manager (representing the trust) make up the voting parties for how this profit is spent. 
  • If you elect to go with the shareholders agreement vs the trust structure and a shareholder is likely to take a senior role in the business (ie director or associate), they should be advised to set up their own ‘company as trustee’ that holds those shares to protect their personal assets. 
  • Educate your team about dividends – if they’re ‘unfranked dividends’ (ie no company tax has been paid) – then they will need to set aside their tax rate from the dividend for tax time.   

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Herston QLD 4006

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