A lot of business owners consider how to exit their business. One of the ways to leave your business is by selling your company to a team member. Selling your business to an employee can be one of the most effective ways of exiting your company. There are many benefits to taking this exit strategy, but there are some negatives.
Below are some things to consider when selling your business to an employee and some recommendations on how to sell it to your team member most effectively.
Benefits Of Selling Your Business To An Employee
The number one benefit of selling your company to a manager within your business is they already know the business. When selling your business other ways, it can take a while to leave the company simply because you need to train the new business owner. Having an employee who knows the inner workings of your company will make it take less time to train them in your position.
The other benefit to selling your business to an employee is it keeps the business functioning as it always has. While they may change certain things, your other team members who know the new owner as a past coworker will have history and trust in the new ownership. It is also likely the business will retain the current team members.
It is important to note the above benefits to selling your business to an employee can also be negatives. Selling your business to an employee is only as effective as the employee is. Make sure they are the person for the job, and you are not blinded by friendship.
Negatives Of Selling A Business To An Employee
There are surprisingly a large number of reasons selling a business to an employee is a bad idea. It seems almost every positive aspect of selling your company to an employee can also be a negative aspect. That is why it is so important to know if you can trust the employee you are selling it to. Below are a few things to be aware of when selling your company to an employee.
- Worker Politics: Selling your company to an employee will likely cause drama among your team members. Make sure you strategically manage the transfer of leadership as well as ownership to your employee.
- Your Employee Can’t Afford Your Company: It can be extremely awkward offering to sell your business to an employee and them indicating they cannot afford it. While there are a few options and ways to work with this dilemma, it can cause difficulty in your relationship.
- Your Employee Doesn’t Want To Buy Your Company: Along the lines of an employee not being able to afford your company, your employee might not want to buy your business. This might not be too much of a problem, but now your employee knows you plan to sell your company, and there is a chance the rest of your company will find out as well.
- Your Employee Knows You: While this can land in the list of benefits to selling a business to your employee, it can also be a huge drawback. Many business owners do not want to see their past job or business after they had fully parted ways with their company. Since your employee knows you, they may call or email you the moment there are any difficulties. While this isn’t always bad, it can become taxing and time-consuming.
Once you sell to an employee there is the time it takes to transfer your business. Make sure you have the transfer process well defined when your employee purchases your business. This will set the ground rules for the transfer process.
What Is An Employee Stock Ownership Plan (ESOP)?
An employee stock ownership plan is not selling your business to a specific team member; but instead, you are selling your business to a trustee that puts the funds into stock shares that helps provide retirement for employees.
This directly connects the employee’s retirement with the growth of the business. This may be showing up a lot in your searches when trying to sell a business to your team member, but it is not what you are looking for insight on.
Sell Your Business To Your Employee
If you are considering selling your business to an employee effectively, and want to talk through your options, contact Synergy Business Brokers to discuss how to sell your company effectively. We can provide you with the full worth of your business, and we can help negotiate the sale of your business.
We have sold a variety of companies in the past and can assist your sale so you can get the full worth of your business.