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.