When the time comes for you to sell your business and take the next step, what’s your exit strategy?
The thought of selling something you’ve worked so hard to build, your life’s work, can be daunting—but it’s inevitable. And still, many owners and founders enter this stage of their business feeling under-prepared, hoping for a third-party buyer to give them an offer that makes leaving their legacy behind a little easier. But selling a business is a complex process, and on the verge of retirement, owners and founders are leaning toward a new approach: internal transition. Internal transition means owners can lean on the people who know their business best, employees, to lead the company into its next phase of growth.
Also known as employee ownership, this option comes with significant trade-offs that favor both the owner and the employees. It gives owners the opportunity to ensure they preserve the foundation and culture the company has worked hard to build and maintain while also walking away with the means to enjoy the fruits of their labor. For employees, ownership builds upon their current investment, improving their retirement benefit.
Need more convincing? Here are the most common reasons why owners are turning to employees when they are ready to sell their business.
Employees understand the outputs of your organization
Who better to turn to than the people who have successfully run your business all along? Your employees know the day-to-day operations, your customer base, and they already have an investment in the future of your company. And while a shift does happen, employee ownership doesn’t change their employment. In most cases, a board of directors is elected by the employee-owners to oversee all the high-level decision-making. This doesn’t change the daily functions of the business and the management structure already in place, but it does provide employees with greater equity, financial security, and even more motivation to work.
They have a succession plan in place
Owners are already implementing succession plans, a strategy employed by businesses to identify the future leaders of their company. Think of it as a very flexible exit timeline. You’re developing your vision and building exceptional employees who are equipped with the training and skills required to support all functions of the business. Because of that, owners can take a step back without fearing about the future of the business, making it easier to transition in the long-run. For owners who are looking to sell their company, these are the key employees that they’re confidently turning to when the time comes to sell.
They’re not winning with third-party buyers
While the market is strong, only 20 percent of all the businesses listed for sale ever sell. And while you can wait for the right buyer to come along and show the interest your business deserves, negotiations don’t always end in your favor, and the payoff for the time investment is naturally in a deficit.
By selling to employees, owners maintain their control throughout the selling process and have the flexibility of more planning time to reduce risk. By eliminating third-party buyers, owners don’t have to compromise on external expectations. It’s a smoother transition, and ultimately, they’re leaving their business in the hands of trustworthy successors.
Employee Stock Ownership Plan have some serious benefits
An Employee Stock Ownership Plan (ESOP) is the government’s way of compensating business owners who sell to their employees by making stock contributions tax-deductible. It’s also a way of giving employees the opportunity to buy when they can’t outright afford to buy out the owner through shared ownership. Through this plan, business owners can set up a trust fund to cash out of the business by transferring ownership to employees, allowing employees to cash in on stock to hold equity in the company. It’s a win-win exit strategy that is proving to serve both parties, improving and expanding on the success of your business.
Your exit strategy doesn’t have to be the headache you envisioned. The opportunities are there, but you need the right partnership to move you (and your business) through this complex process of selling.
That’s what we are here for. We’ve spent years helping owners exit their companies well. If you are preparing (or considering) what an exit strategy might look like for your organization, it’s time we talk.