Selling a Business to Employees: Advantages, Risks and How to Prepare

Selling a business to employees is one of the most personal exit decisions a business owner can make. It’s rarely just about price. It’s about continuity, leadership, legacy and the people who helped you build what exists today.

Every situation is unique, and every outcome takes hundreds of factors into account. But, for most, selling a business falls into one of three categories:

• Selling to a third party. The goal here is to maximize the value of the business and create the best multiple for you. Most likely you’re selling to a competitor, a business looking to expand into your specialty, or a private equity company. We recently broke down how a company leveraged this strategy to reduce their capital gains tax burden – watch the webinar replay here.
• Transitioning the business to family. In this scenario, you’re not necessarily looking for the most money (though sometimes that is the case). You’re usually looking to solidify the business and reduce risk for the next generation of ownership. This is often a slow process. We unpack what this kind of transition really looks like in Episode 2 of our podcast Builders, Makers, Doers. Listen here.
• Selling a business to employees. Typically, an internal transition outside of family is a hybrid of the other two scenarios – you’re weighing the balance of financial outcomes and building a solid foundation of resiliency. Preserving culture, protecting long-standing relationships and educating on important processes all come into play. But you also need to consider structural, financial and leadership complexity that’s easy to underestimate.

Today, let’s dive into that third option a bit more: selling a business to employees. We’ll take a step back and look at the full picture – the upside, the real challenges and what it actually takes to make the transition work well.

Read the full Ellerbrock-Norris Wealth Strategies article here.

Ellerbrock-Norris Agency Inc. ("ENA") does not directly provide investment advice or investment management. Such services are provided by Ellerbrock-Norris Wealth Strategies LLC ("ENWS"), a registered investment adviser owned by ENA. Please note that certain insurance agents of ENA are also investment adviser representatives of ENWS.