Deciding that it's time to sell your business is a big decision all by itself, but unfortunately, it's only just opening the floodgates to many more decisions - all revolving around the question of how the business will be sold.
Not only do you need to ensure that you first assess the business’ true worth accurately, but then you need to find a buyer whom you can entrust with the future of your business. 'You have put so many years of effort and dedication into the enterprise, that just handing it over to an outsider and walking away might prove to be more difficult than possible.
An alternative, which can grant sellers peace of mind when leaving the business, is to assess if any of the current employees would be able to take over the mantle. There are indeed quite a few good reasons why you should consider an employee over an outside buyer.
Previously, we discussed the cons of selling to an employee – now we highlight the positive aspects of such a sale.
No-one knows a company better than those who have worked inside it for years. Also, since they know the inner workings of the business, the transaction can be more honest and open, as well allowing the employee insight into aspects of the business that they may not have been privy to before. The level of trust garnered from this type of sale will allow the seller and buyer to stay on good terms, thus ensuring that the seller can act like a mentor to the new owner. You can leave the company knowing that the employee has a perfect understanding of what is working at the company, as well as what may need to change in order for the company to step forward strongly into the future.
If you choose the correct employee, they are probably already high up in the ranks, and have proven themselves under the company ethos. Even though no ownership will be the same as the last, and the seller can’t expect that their management style will be followed, there is a certain assurance and comfort in selling to an employee.You have already witnessed how they conduct themselves within the business, which values mean something to them, and will have some degree of expectation of how the company will fair under their leadership.
An ESOP is an employee benefit plan that an owner can implement even when they aren’t planning to sell the business. It’s a clever way of incentivising the employees by providing them with benefits gained from having stocks in the company. It is a variation of the traditional profit-sharing plan. ESOPs are commonly created as retirement plans for employees, to encourage longevity and motivation within the company.
If a company has an ESOP in place, it allows an owner to sell all, or some of their shares back into the business. Employees can buy these shares through the ESOP plan, and be incentivised further to ensure that the company does well. Owners can then sell their shares back to the ESOP gradually over time, or all at once.
This is also a great way to keep the company independent, even through the selling of the business.
Selling your business to an outsider can lead to employee morale going down, either because the employees feel betrayed, or because they distrust the new ownership. Selling the business to an insider who has proven themselves to the employees can lead to a more seamless handover. Employees will be less worried that their jobs might be in jeopardy, that the company could change drastically and so on. If the new owner is a known entity and one of their own, then the whole process will be easier on the entire company.
Have you considered selling to an employee? What are your thoughts?
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