Successfully Selling Your Business to a Key Employee.
At the beginning of the succession planning process, with no apparent family members as possible buyers, it's logical to consider selling your business to an employee or group of employees. In fact, you should consider employees as possible buyers. It's to your advantage to evaluate the employee or group of employees, first, in the succession process before you look for an outside third party buyer. If you ignore interested and qualified employees, as buyers, it's likely that the value of your business could diminish. If a key management member leaves the business, because of being ignored or overlooked as a buyer, a large hole in the management team may occur. Your business may be seen as less attractive to a buyer.
I suggest that you use a brief set of initially qualifying questions or topics for discussion to see if you have an employee or group that is likely to completely meet your requirements. If you do, then you can get more serious about moving forward to sell to your employee group.
1. The first area to examine is the market value of the business. What is it really worth? Get some help on this. The topic of value is critically important and somewhat complicated. There are several key value indicators that you can apply to your business to discover its value. Your selling price should be the same for employees as it would be for an outside buyer. You have essentially two methods of business sale form; selling its capital stock or its net assets.
2. Now that you have a value for your business, the second set of fact-finding questions to analyze includes the financial capability of the employee(s). A personal financial statement form filled out by the employee will be a good start. Does the employee have capital to invest in your business's purchase? If not, you may need to be the bank. If a term payment note is considered in the selling process, what protection will you have if he stops paying the note payments? Can he qualify for an SBA loan? Additionally, how's his credit? It's probable that he'll manage your business affairs in the same manner as he manages his.
3. The third and final group of initial qualification facts to study is the employee's total capabilities to own and manage the business successfully. Compare your expectations of what you want the final outcome to be to his or her overall capabilities as a possible owner. Don't vary from your objectives! Hold all possible employee buyers up to your exact standards and listen to what your inner sense concludes. Act with only YOUR best interest in mind!
If you would like more detailed information describing the steps for selling your business to a Key Employee, please contact me personally at 847.382.8886 or send me an email at paul@heinze.com . Please look at our web site www.heinze.com.