Employee ownership is often described as a cultural shift, and it is.
But it’s also a financial contract. A long-term one.
And few aspects shape the success of that contract more than deferred consideration.
Welcome to the ninth instalment in our Employee Ownership Know-How series, where we pick apart the misconceptions, myths and unhelpful norms that go hand-in-hand with employee ownership. In this episode, we explore why legal handover (the transaction) is only the first step – and why the real value of employee ownership is unlocked through transition and ultimately, transformation.
Before we start, what do we mean by deferred consideration?
When a business transitions to employee ownership, the purchase price is rarely paid in one lump sum. Instead, it’s typically structured as deferred consideration: a series of staged payments to the selling owner over several years, funded from the company’s future profits.
This approach makes employee ownership financially viable, allowing the business to “buy itself” over time. However, it also creates a unique dynamic: the vendor’s financial future becomes tied to the business’s ongoing success, and the business must balance these payments with growth and profit sharing for its new employee-owners.
In this episode, we explore how both sides can plan for this handover to ensure the deal not only completes but thrives.
Sneak peek: What’s inside the guide
The art of the handover is both a reality check and a roadmap. It’s a clear-eyed look at how to navigate one of the trickiest EO dynamics: ensuring the business can repay the vendor, while still investing in growth and rewarding its new employee-owners.
Deferred consideration isn’t guaranteed, so plan for gaps
For most founders, transitioning to employee ownership means swapping regular income for long-term, performance-dependent payments. And while it can be a tax-efficient and flexible exit, it’s not without risk. This guide shares why vendors should:
- Build a robust personal financial plan that centres deferred consideration (DC) as income
- Understand that payment delays are common
- Create a Plan B in case things don’t go to schedule
Put simply? Hope for the best, but be mindful to prepare for the worst.
An EO business can’t pay what it can’t afford
For a newly employee-owned business, deferred consideration is not just another line item. It’s a legacy liability, and one that competes with growth investment and employee profit share.
This section breaks down:
- Why strong cash flow forecasting is essential
- How to avoid squeezing morale by over-prioritising vendor payments
- Why profit share matters as much as vendor payments in EO culture
The triple squeeze is real, but avoidable
Perhaps the most valuable insight in the guide is what it refers to as “The Triple Squeeze”: the pressure of balancing payment to the vendor, operational costs and growth, and profit share to employee-owners.
This guide lays out a clear call for:
- Conservative modelling
- Ongoing communication between the vendor and the business
- Working with EO-experienced professionals to avoid common mistakes
Ready to Plan a Successful Handover?
Deferred consideration sits at the intersection of financial planning, cultural leadership, and shared responsibility. Get it right, and you build a strong bridge between founder and future.
Get it wrong, and a once hopeful bridge becomes a dream-ending bottleneck.
Who We Are
We’re Paradigm Norton – a financial planning firm that understands both sides of the employee ownership table.
We’ve supported founders navigating the handover. We’ve helped new EO businesses build sustainable cash flow models. And we’ve lived the journey ourselves, since becoming employee-owned in 2019.
That’s why we approach deferred consideration with two priorities: protecting the vendor’s future and empowering the employee-owned business to thrive.