Selling a business to one or more employees can result in complex and emotionally taxing negotiations. (For the purposes of this article, I will assume that we are dealing with a single employee, as dealing with multiple employees make it even more complex.) On one hand, the business owner may have a desire to transfer the business to a team member that has a thorough knowledge of the business operations, which makes the transition more streamlined. On the other hand, the employee may feel entitled to a significant discount in value as the employee believes that he or she was responsible for generating the success of the business. The owner probably also doesn’t want to alienate the employee in the event the transaction does not occur. Typically, neither the owner or the employee knows the value, the proper deal structure, or how to finance the transaction.
Last month my firm closed on a transaction where the key employee purchased the business. The owner had been trying to sell his business for about four years before contacting us. After meeting with the owner and discussing the situation, we met with employee/buyer, reviewed his personal financial situation, negotiated a contract, and assisted the buyer in obtaining financing. The transaction closed in about five months from when we started working with the employee and most of that time was devoted to completing the financing for the purchase.
In addition to assisting in the sale of a business to employees, we have also assisted in the sale of businesses to children, as having an objective third party can be a buffer and preserve relationships between the parties. In transactions involving employees and/or related parties, we typically discount our fees if the situation is disclosed to us in advance.