When I had considered selling my first business, I had quietly broached the idea with my key employees if they would consider taking on an ownership stake in the business. For one reason or another they had individually indicated to me that there was not a firm interest in taking on a shareholding and the responsibility it entailed.
The above scenario has repeated itself with other business owners seeing a management buyout as one of the possible exit strategies. The reluctance of key employees to take the next step forward of ownership and be in control of their livelihood, leaves the current business owners with one less exit avenue in relation to their company’s exit strategy.
Whilst the employees enjoy the security of their employment, the personal financial situation of the employees may vary, and some may find it difficult to commit the necessary funds. Whilst an upfront payment is often desired when selling one’s shares, due to the years of trust built up by having worked together, the seller may be open to relinquishing their shares with a flexible payment plan, often referred to as a seller financed deal.
A personal and unpopular reason behind the reluctance for employees to take on a shareholding is the general reluctance of employers to engage more entrepreneurial individuals within their firm. This reluctance often stems from the idea that these employees’ long-term goal would be to move on to start their own endeavour. This leaves the organisation with skilled employees who may not possess the willingness or entrepreneurial desire to become business owners.
Often times the business owner may have spent considerable time preparing to exit the business and developing his exit strategy. Approaching the employees to take on a shareholding may come as a surprise to them and they may feel a bit lost on how best to move forward. The employees may have many first-time considerations, including, the business’ valuation, tax, accounting, and legal considerations.
Throughout the process it is vital that there is open communication, allowing clear information, and addressing concerns to gain the employees acceptance to this proposed exit strategy. Additionally, seeking professional advice and involving employees in the decision-making process from an early stage can contribute to a more positive outcome in their acceptance for a management buyout.
A management buyout allows for a smooth transition in the owner’s knowledge that the
good practices that the owner instilled within the company to live on through the next generation that they would have personally mentored.
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Contact http://www.idisav.com to assist with your exit planning or acquisition considerations.
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