Related Benefits of Selling Your Business to Employees
Today’s business owners are often faced with the dilemma of selling their business to their current employee(s) or to an independent third party. Below, we address some of the benefits of sales to company employees.
- Many business owners prefer to sell their business to their current employees because it rewards those who have helped build the business.
- This type of sale promotes business continuity and often insures the owner’s legacy will remain.
- Ownership sales to employees may be structured to allow the owner time to gradually transition their ownership interest and more adequately plan for retirement outside of their business.
- If the business value currently does not support the owner’s retirement needs, employee sale structures may provide a longer time period to build company value allowing the owner a greater return.
- Gradual transfers to employees create loyalty and motivation to remain with the business by providing them with ownership interests.
- Gradual transfers also allow the owner to retain control of the business to ensure that the future owners can properly manage the business, and that the owner will be compensated fully for the value of their business.
- Transfers may also be structured in a manner that the owner can abandon the employee sale and sell the business to a third party if it is deemed the employees cannot properly manage the business.
Having a formal business exit plan with well-drafted documents which may include buy-sell agreements, non-competition agreements, and employment contracts is vital to this process. That’s why it’s important to consult with an exit planning advisor.
There may also be pitfalls to selling a business to employees and we will take a look at that side of the equation in an article next month.
For additional questions please contact either Joseph J Witkowski, Jr, CPA at firstname.lastname@example.org, or Steven M. Wolf, CPA at email@example.com.