Selling Your Business to Your Employees
Entrepreneur.com offers to show how to strike a fair deal when selling your business to your employees.
Mark J Kohler, author of The Business Owner’s Guide to Financial Freedom, provides an extract from the book.
Employees make natural successors if it wasn’t for the small matter of having the funds. And, sometimes, a full set of management skills required to successfully run and grow the business.
Mark starts by explaining the risks with taking employees into confidence about your plans to exit. This can cause concern and, possibly, a loss of some employees. However, that said, there’s still the matter of valuation. Employees know the weaknesses of the business and this depresses price.
A frequent barrier to an employee deal is that employees tend to lack the capital to proceed with a transaction. Mark’s suggestion is that the buyout is financed by a seller note ie. the owner of the business undertakes to receive his payment from the future profit of the business. Not covered here, however, are other options such as the use of external finance.
He goes on to provide some tips on transition and transfer of ownership.
The full article is here.