A few weeks ago at one of our exit planning conferences, an attendee approached our managing director during a break and thanked us for holding the meeting, but said he wasn’t sure the conference was right for him because he was committed to selling the business to one of his key employees.
Our managing director convinced the business owner to stay for the entire meeting because one of the topics we cover is the downsides of selling a business to your employees.
And he was very glad he stayed because he was not familiar with some of the risks in pursuing this approach when exiting a company.
We encounter this line of thinking quite a bit in our business and on the one hand, it is natural to want to thank your key players by offering them the opportunity to acquire your business.
It can be demonstrated as a reward for their efforts in growing the business, and many believe their knowledge of the company’s inner-workings would make them ideal owners.
However, too often the choice to sell a business to employees is an emotional decision made without considering some possible outcomes that frequently crop up later. Here are just a few of the most common issues:
Far too often we encounter business owners who have been impacted by all three of these risk factors. The first two risks you are facing directly impact the performance of the company in the long run, usually creating the true impact of the third risk listed: The key employee (now CEO) stops making payments as agreed because the once great company is now underperforming.
History is littered with business owners who, after selling their business to a key employee, are forced to come out of retirement 4-5 years down the road and try to save the entire enterprise.
This can have a devastating impact on the ex-owner, his/her health, and their family, as well as the financial ramifications, which can be enormous.
We believe that the significant risks associated with this strategy far outweigh any benefit to the current owner (and also the key employee).
In most cases, it is far better to find a third party with deep pockets and experience running a business to sell the company to rather than hope that Larry, who is a great shop foreman, has the aptitude and attitude to be a successful CEO (and really wants to be one).
Especially right now, when we are experiencing one of the strongest seller’s markets in decades, experienced, professional buyers are increasingly active.
This not only helps those interested in exiting their company achieve the maximum value in this competitive market, but find the buyer that will continue and build on the legacy you have created in your business. Let's face it, for most business owners the emotional goal is to ensure that the company name and its role in the community is preserved post sale. Selling to a key employee often endangers that.
If you would like to learn more about optimal buyers, including how to find them, negotiate with them and close a deal, then you should attend a Generational Equity exit planning conference.
If you have considered selling the business to a key employee, we strongly encourage you to attend and discover the options available to you.
To learn more about our insightful conference, call us at 972-232-1121, or visit our website and provide us with your contact information and we will be in touch.
And please, before you sell to an employee, carefully research some of the potential negative consequences. It could save you millions when you exit.
By Carl Doerksen, Director of Corporate Development at Generational Equity.
© 2018 Generational Equity, LLC. All Rights Reserved.
The information we learn from customers helps us personalize and continually improve your experience at gencm.com. Here are the types of information we gather.
Information You Give Us: We receive and store any information you enter on our Web site or give us in any other way. We do not sell or rent your personal information to others without your consent. We use the information we collect only for the purposes sending promotional information, enhancing the operation of our site, serving advertisements, for statistical purposes and to administer our systems. We DO NOT use third parties to provide customer service, to serve site content, to serve the advertisements you see on our site, to conduct surveys, to help administer promotional emails, or to administer drawings or contests, but reserve the right to do so in the future without advance notice. Our computer system protects personal information using advanced firewall technology.
Information from Other Sources: For reasons such as improving personalization of our service, we might receive information about you from other sources and add it to our account information.
Generational Capital Markets LLC may license the use of its intellectual property including but not limited to its name, likeness, and logo for the use of affiliated offices. Such affiliated offices may not be owned, controlled, managed, supervised or staffed by employees, officers, or agents of Generational Capital Markets, L.L.C. Affiliated offices may be independently owned and operated. For more information about a particular office, please contact Generational Capital Markets LLC at is office in Dallas, Texas.
This page may contain other proprietary notices and copyright information, the terms of which must be observed and followed.
INFORMATION ON THIS WEB SITE IS PROVIDED "AS IS" WITHOUT WARRANTY OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT. SOME JURISDICTIONS DO NOT ALLOW THE EXCLUSION OF IMPLIED WARRANTIES, SO THE ABOVE EXCLUSION MAY NOT APPLY TO YOU.
Information on this web site may contain technical inaccuracies or typographical errors. Information may be changed or updated without notice. Generational Capital Markets may also make improvements and/or changes in the products and/or the programs described in this information at any time without notice.
Generational Capital Markets does not want to receive confidential or proprietary information from you through our web site. Please note that any information or material sent to Generational Capital Markets will be deemed NOT to be confidential. By sending Generational Capital Markets any information or material, you grant Generational Capital Markets an unrestricted, irrevocable license to use, reproduce, display, perform, modify, transmit and distribute those materials or information, and you also agree that Generational Capital Markets is free to use any ideas, concepts, know-how or techniques that you send us for any purpose.
Information Generational Capital Markets publishes on the World Wide Web may contain references or cross references to other products, programs and services that are not announced or available in your country. Such references do not imply that Generational Capital Markets intends to announce such products, programs or services in your country. Consult a Generational Capital Markets representative for information regarding the products, programs and services which may be available to you.
Generational Capital Markets makes no representations whatsoever about any other web site which you may access through this one. When you access a non-Generational Capital Markets web site, please understand that it is independent from Generational Capital Markets, and that Generational Capital Markets has no control over the content on that web site. In addition, a link to a non-Generational Capital Markets web site does not mean that Generational Capital Markets endorses or accepts any responsibility for the content, or the use, of such web site. It is up to you to take precautions to ensure that whatever you select for your use is free of such items as viruses, worms, trojan horses and other items of a destructive nature.
IN NO EVENT WILL Generational Capital Markets BE LIABLE TO ANY PARTY OR ANY DIRECT, INDIRECT, SPECIAL OR OTHER CONSEQUENTIAL DAMAGES FOR ANY USE OF THIS WEBSITE, OR ON ANY OTHER HYPERLINKED WEBSITE, INCLUDING, WITHOUT LIMITATION, ANY LOST PROFITS, BUSINESS INTERRUPTION, LOSS OF PROGRAMS OR OTHER DATA ON YOUR INFORMATION HANDLING SYSTEM OR OTHERWISE, EVEN IF WE ARE EXPRESSLY ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Furthermore, all information contained within this website is the property of Generational Capital Markets.
Honored to win Investment Banking Firm of the Year 3 years running.
Over 50 awards and counting.
Sign up to receive regular email updates, industry-leading insights and details on complimentary M&A executive conferences in your area from our award-winning team
Success, you have been added to our list.