Should I Sell My Business to an Employee?

Many business owners consider adding new employees to their companies. Talented employees can help expand your business by increasing your ability to provide quality products or services. They may also become future potential buyers when you decide to sell.

Business owners should be cautious about hiring employees with the sole purpose of selling their businesses to them. While employee buy-ins are a viable strategy, you must carefully plan ahead to ensure a successful sale.

What is an employee buy-in?

In this type of transaction, a business owner gradually turns the company over to the employee before exiting after an agreed upon amount of time. The former owner then receives payment from the buyer.

What are the benefits?

Some business owners prefer this type of transaction because they are able to cut back on hours while maintaining control of the business until they exit. Business owners who are particularly attached to their customers and staff members may also prefer this option, as they are able to sell to someone they already know and trust.

What are the risks?

Business owners sometimes fail to sign formal sales agreements with their employees. This ambiguous arrangement can lead to major issues, even with the best of intentions between the buyer and the seller. The transaction could fail if the employee decides to go a different direction. Many loose employee buy-in arrangements end up dissolving, sending the business owner back to square one.

How can I set myself up for a successful employee buy-in?

We recommend you define a purchase contract before the employee starts at your business. In the contract, you should predetermine a time frame and phasing plan with specific milestones and a method of valuation and payment for the business.

Some business owners fail to plan for their future sale because they expect that their employees will buy them out of the business. While this is possible, you should also prepare for other scenarios. Contact our business broker team to discuss how to accurately price and market your business to ensure you receive the outcomes you are looking for.