Why Sell Your Business to Your Employees?

What Will Your Legacy Be?

Whether you’re an owner thinking about retirement, or an entrepreneur looking for a new and different opportunity, you’ve poured your life into your small business. While it’s not something people like to think about, coming up with a succession plan for when you leave is critical and careful planning is essential. Otherwise, you may wind up like the 75% of business owners who regret selling their business a year after the transfer occurs, or worse, one of the millions of businesses that close up shop when the owner retires. You’ve probably thought about selling to your children, key managers, or a competitor; you’ve likely thought about whether a strategic buyer is out there, or simply liquidating your assets. But what about your employees?

You’ve created jobs and want to ensure they are around when you leave; you’ve built a business you want to see survive for the next generation; you want to convert some of the equity you’ve built up  into cash – but don’t necessarily want to leave the company; you want the legacy you’ve built to mean something to the people who helped build it – If this is the case, you want a worker co-op.

South_Mountain_CroppedMany people are put off by the notion of a co-op – they think of consensus decision making or flat management structures with no accountability. The reality is that it’s simply a democratic way to run a company – the people who work at a firm elect the board of directors on a one person / one vote basis. A co-op can be what you make it and the capital structure is extremely flexible and cost effective. Studies have shown that when ownership is paired with a meaningful degree of employee participation, that performance, productivity and firm longevity is enhanced. A democratic workplace is more than just a way to make jobs better, it’s a way to make companies better.

4 Reasons selling your business to your employees is good for you, your staff, and your community. 

Machine Shop1You can realize a higher gain selling to your employees

The capital gains from the sale to a co-op or ESOP can be deferred indefinitely. Furthermore, the money used by your company to pay off any loan can be fully tax deductible – including the principle. Repaying this loan with pre-tax dollars greatly improves the company’s cash flow and the willingness of lenders to finance the deal. Finally, in a co-op and some ESOPs, profits paid out to employees, either in cash or paper, are a deductible expense.

2 The sale can happen gradually, at a pace that suits your needs and that you can control

You do not have to sell all at once with a co-op or an ESOP. And you do not have to give up control of the company until you are ready to do so. In addition, if you wish, your partners or family can retain an interest in the company indefinitely. These features make a sale to a co-op or ESOP an extremely flexible way to sell a business.

3Employee owned firms are more profitable and faster growing than traditional companies

Research has shown that profits, productivity, job satisfaction and growth are higher in employee-owned firms. This is particularly true in companies that combine communication and participation with ownership.

4It rewards employees for years of dedicated service and strengthens the community in which you operate

Selling to an outsider can often result in the facility being closed, or existing management being replaced. Selling to employees leaving control to those who have helped you build your business for years – those who know it best. This rewards them, and ensures that the people you have depended on are in control of your company and their futures. It also makes it more likely that your company will continue to live and grow as an independent business.

The first step in exploring the employee ownership option is to email or call ICA. We will arrange an initial consultation at no charge. Then, if you like what you hear, we can perform a more detailed review of your situation and determine whether employee ownership may help you achieve your goals. Contact The ICA Group