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Selling your business to your partners, management team or employees can be an attractive option to consider. Current employees know the business and have an interest in seeing it prosper. As well, customers, suppliers and investors may be reassured by the stability this option offers. You might also like the idea of trusting your business legacy to people you know well.
If you’ve worked in the business a long time and seen it grow and prosper due to the graft you’ve put in, you’ll care about what happens to it after you sell it. If you can sell it to a trusted employee, they’re more likely to maintain the existing company culture and run the business in a manner similar to yours, especially if they’ve been with you a long time.
Selling to an employee also means:
In most cases, selling your business to an employee will follow a common path. The steps usually include:
Each stage of the process should be overseen by professionals.
This method allows a business owner to sell the business to all qualified employees instead of a single buyer. Often ESOPs are part of an employee’s perks, where they receive a stake in the business as part of their contract. The shares are held in trust until they leave.
There are two basic ways ESOPs work when the owner is selling the business:
1. The employees contribute to the ESOP fund, which is then used to purchase the owner’s shares over time. In some cases, the ESOP can be funded through commercial financing, reducing the amount of time it takes for the seller to receive proceeds from the sale.
2. The ESOP is funded through the seller, which is more common. Essentially, the ESOP buys all of the owner's shares at one time and pays the seller for the shares with a note that yields a healthy interest rate. Ownership of the company transfers to the employees and the seller receives the sale price plus interest.
Of course, an ESOP needs to be part of the business from an early stage, it’s not something that can be implemented at the time the owner wants to sell.
Once all the i’s have been dotted and t’s crossed, it’s time to begin the transition process. How long this takes depends on the level of experience and knowledge your employee already possesses. If you’ve been mentoring them for a long time, they’ll have the necessary skills and experience to take over with a minimum of training.
Selling your business to an employee is a great way to ensure it stays in capable hands and continues to run along the lines that you specified from the beginning. It’s easier on your other employees, as they don’t have to get to know anyone new. The same goes for your customers and suppliers. You might not get the same price as you would on the open market, but that’s something you should balance against the benefits of selling to an employee you trust.
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