Selling a company as a business owner can be daunting. You have likely invested a significant amount of time and effort into building it up, and the business must continue to grow and thrive even after you have left. One option that may interest you is selling the company to your employees. They are already familiar with the ins and outs of your business and have a vested interest in its continued success.
The upside of employee acquisition
Selling your business to the employees can ensure a seamless transition that causes minimal disruption. The changeover is usually smooth since the employees are familiar with the company’s operations and have built relationships with clients, suppliers, and investors. There’s no need for extensive training or introduction to a new owner, so the transition can be easily accomplished.
Selling to one of your employees can be a convenient option, as it can save you time and effort that would otherwise be required to educate an external buyer about your business. Additionally, if you sell to a Team Member, you may not have to stay involved in the industry for as long as you would with an outside buyer, as the new owner will not require as much training.
The downside of employee acquisition
Selling to a Team Member, while seeming like a good idea, has some downsides. The price at which you sell might be lower than what you could get on the open market. Additionally, the Team Member may need more funds to complete the purchase, which could mean you must provide financial assistance.
The selling process
When selling your business to a Team Member, a standard process usually involves several steps. These steps include agreeing on a sale price, evaluating the company, determining whether the employees can purchase the business entirely or if you need to finance part of the deal, and creating a shareholder agreement to transfer ownership. It is vital to have each stage overseen by professionals to ensure that all aspects are completed accurately and legally.
The Employee Stock Ownership Plan (ESOP) option
Instead of selling your business to a single buyer, you can consider an Employee Stock Ownership Plan (ESOP) that allows you to sell it to all qualified employees. ESOPs can be funded by either the employees or the seller, but in both cases, company ownership is transferred to the employees. As the seller, you will receive the sale price plus interest.
Preparing your employee for leadership
After completing all the necessary paperwork, it’s time to begin the transition process. The time it takes will be determined by the Team Member’s level of experience and knowledge. If you have been mentoring them for a considerable time, the transition should go more smoothly.
Conclusion
Selling your business to one of your employees can be a practical solution to ensure it runs successfully. Although you might receive a different amount of money than you would by selling it on the open market, the benefits of a seamless transition and the assurance that your business is in capable hands frequently surpass the possible financial difference.
If you would like some guidance regarding this alternative, please do not hesitate to contact us.