Selling Your Business to an Employee

At some point in a business owner’s life, there comes a time where one has to make a difficult decision to move away from ownership. Although selling your company can be very rewarding, especially if selling to a key employee, it can still have its challenges. If you are considering selling your business, follow these important steps from Kiplinger to help reduce the stress that this experience can bring. 

1. Be Clear on Why You Want to Sell

You should be very clear on what your “why” is for selling. It could be for a number of reasons. From retirement, divorce, finances, to possibly losing the passion you once had for your business, no matter the reason it is important to keep this in the back of your mind as you go through the selling process. 

2. Identify Your Buyer

This step may take you some time as it should be a meaningful decision that takes much thought. You should not rush into this as it takes time choosing a staff member that could possibly be the best fit. 

3.Obtain a Professional, Independent Valuation

Although you might have an idea of what your business is worth, it is still important to get a professional opinion. Just because you have a price in mind, doesn’t necessarily mean someone will be willing to pay for it. 

4. Determine the Structure of the Sale

If you are selling to one of your employees, you might consider an installment sale as this is very common. As the prior owner, you would typically hold a promissory note with installment payments over a certain amount of time with interest. 

Essentially, the buyer will make regular payments in the form of installments to you. This method can be very useful if you are looking to gain money over time. If your business is stable, has good staff, and has a steady cash flow, selling on an installment basis might be the best fit for you!

5. Financing the Sale

One downside to selling to a staff member is that typically they do not have the financing available for a large lump sum of cash in order to purchase your company. Unfortunately, selling to an employee can often mean that you will get less for the sale compared to working with other buyers.

6. Communication 

It is essential that you communicate the sale of your business to customers, vendors, and suppliers. You can do this by having an in-person meeting or by phone. It may also be a good idea to include the buyer in the conversation as well so that your customers can start feeling comfortable with the new owner. It is important that you also speak with employees regarding the purchase. You need to offer them reassurance in order to help them gain confidence with their new employer. 

Overall, selling your business can be a daunting task, however, it can also be a rewarding experience when selling to a key employee. By selling to a staff member, you will most likely share the same vision, values, and work ethic as them, which helps make selling your business an easy experience because you know it will be left in good hands.