How Can My Employees Buy My Business?

In some cases, employees are capable of successfully operating a business, but lack the capital to acquire it. This may become the last resort for a seller, who takes a note rather than close the doors. This approach leaves the seller in the role of silent partner, hoping that the employees can maintain the business well enough to pay the debt.

With some reasonable planning, selling to employees can be more pleasant, and better for both buyer and seller than seeking an outside third party to purchase the business. Pricing becomes less of a negotiation, since both buyer and seller agree on the same valuation methodology well before the transaction. The nominal price of the business is less important than the owner’s needs for retirement, and employees’ ability to qualify for financing.

Owners who develop an exit plan for selling the business to employees can begin the transfer while they still hold control of the company. The employees gradually assume substantial ownership. After they learn the responsibilities of managing the company, they can qualify for a loan to purchase the remainder of the ownership. In these cases, the owner does not surrender decision making until his or her payment is completely secure. 

Where an owner seeks retirement funding in excess of what the business is worth today, employees can earn their equity rights by achieving specific sales goals and profitability objectives. This gives them a powerful incentive to assume responsibility for building a business independent of its current owner.

If you believe that you have employees who are capable of operating the business without you, please contact us. Planning for an employee transfer may take some time, but can have terrific results in building a win-win situation for everyone.

"Five Years From Now..."

We refer to it in the exit planning trade as the "perpetual five-year exit plan".  When asking a business owner when they plan to exit their business, the following is a fairly common response:  "Not sure but probably about five years from now..."  We refer to it as perpetual because it is also rather common to get the same response year after year from the same owner.  There can be numerous and varied reasons for the response, but a lack of planning is often primary. 

The problem is that if you don't start planning now, you and your business may not be ready for you to exit in five years, and it could end up being necessary for you to plan and wait for another five years in order to attain your goals.

Following is the "2018 Exit Planning To-Do List" we posted on Jan 1 as a reminder to get started and avoid the perpetual five-year plan.  Please contact us if you need help in designing or implementing your plan for a successful exit.

DECIDE WHERE YOU WANT TO GO.  Establish Clear Goals and Objectives for Exit and Your Life After Exit.

  • When do you want to leave the business? Whom do you wish to transfer/sell the business to?

  • What are your values-based and legacy exit goals?

  • What is your post-exit "life-plan"? Business owners can often regret leaving when lacking a plan for life that replaces the sense of purpose and meaning they experienced in building their business.

  • Update your Personal Financial Plan. Find out how much $$$$ you will need post-exit to do all you want to do. Is there a gap?

ASSESS WHERE YOU ARE.  Without Accurate Data All Planning Becomes Meaningless.

  • Get an accurate Business Valuation. If the business is your largest asset shouldn't you know what it really is worth to potential buyers?

  • Assess your business Value-Drivers and areas of Risk.

  • Review your Business Continuity Plan for life transitions and unexpected death or disability. Co-Owners would include a review of their Buy-Sell Agreement to ensure alignment with current goals of all owners.

  • Review Estate Plan to ensure alignment with exit goals.

DESIGN AND IMPLEMENT A PLAN.  Build Transferable Value and Enjoy a Future Exit On Your Own Terms and Conditions.

  • Which Exit Route will best accomplish your goals? Sale to Third-Party | Sale to Insiders | Transfer to Family Members | Sale to ESOP | Absentee Owner.

  • Focus on growth and profitability today. At the core of tomorrow's successful exit plan is today's profitability and plan for growth.

  • Strengthen business value drivers.

  • Update strategic financial plan for the business.

  • Do you have the right Team of Experienced Advisors for plan design and implementation?

  • Who will Manage the Exit Planning Project?

Following are some easy next steps:

Contact Us Today for a No-Obligation Exit Planning or Value Building Exploratory Meeting.  Take our Free ExitMap Readiness Assessment and Value Builder Score questionnaire.  You could also visit exitreadiness.com for Online Learning and Education.