Owners usually want to keep the sale of the business confidential from competitors, customers, and employees. There are many risks associated with employees finding out about the sale of the business and approaching an employee to consider a purchase could jeopardize the confidentiality, as it is likely that if one employee finds out, all employees will know about it in short order.
There are often differences in the mindset and outlook between an owner and an employee. A great technician may have the skills to do the work, but many employees simply do not have the amount of drive, determination, and risk taking that is necessary to successfully run a business.
Having enough available liquidity to complete a purchase is often a problem for employees. If the employees do not have the ability to make the down payment and put up sufficient collateral for bank financing, then they often look to the Seller to provide the financing, which may not be in the Seller’s best interest.
The sale of a business can generate many different emotions that rise to the surface. Sometimes, employees are quite familiar with the owners and many employees may be affected by feelings of entitlement. They may feel that they deserve a price discount or more favorable terms than an outside buyer because of their position with the company.
The decision to pursue a sale to an employee is irreversible. Once you cross the line you can never go back. If the employee does not buy, what happens now? If the business is not sold to the employee, the employee may hold a grudge or leave the business. If they leave, will they take other employees or customers with them?
A failed transaction of this sort can be very costly to an owner. Not long ago, a Seller was referred to us for help with selling their business. They had previously contemplated selling to two of their employees and decided to pursue it. Fast forward a year later and they were telling us about how the transaction had fallen through and a group of their employees quit, leaving the business without the ability to take on new projects. As a functioning company, the business was probably worth over $3,000,000 but is now considering liquidation at a fraction of that amount.
If you are contemplating the sale of your business to an employee, it may be in your best interest to talk to an experienced Intermediary to explore options before jumping in unprepared.