Selling Your Business to an Employee

There are a few options for a business owner who wants to retire. Selling the business to an employee or group of employees is one of those options. This may seem like the easiest way to transition, but the seller should still have professional assistance to make sure the sale is successful and the future of the business is secure. (Most business sellers care about the future success of their business).

Make sure the employees are experienced, trained, and mentally prepared to own and operate the business. Employees can make terrific managers, yet fail when it comes to the rigors of ownership. Handing over a substantial business to an employee who has only limited resources and experience is dangerous.

Being charitable is commendable, but the seller may be putting their buyer and the business at extreme risk. Will the buyer have a substantial investment or will they be relying on the seller to finance? Will the buyer have the fortitude to resist taking all the cash out of the business when they have personal debts to pay? Can they skip their salary if business is down? Will they be able to secure a line of credit if the need arises? If it is a group of employees that will manage together, do they have a realistic and detailed partnership agreement? These are just a few of the questions that need to be addressed.

Another consideration for a business owner when contemplating a sale to employees: is the seller getting solid market value for the business? Does the price include a premium for seller financing risk? It will be critical to get a market valuation completed to ensure the seller is not leaving anything on the table. Personal and emotional decisions should be limited.

If you are a business owner considering a sale to your employees, call an Apex Business Advisor for a review of your plans.