Few longtime business owners approach the decision over whether and how to sell without a great deal of planning and forethought. After all, it’s often the culmination of a lifelong career. On the business side, the process can be complex, and it can create risks for the company going forward. But the business itself isn’t your only concern.
Selling a closely held business creates a significant liquidity event, and it’s best to approach the sale having consulted with your own wealth and tax advisors, to ensure you’re informed about all your options and their financial consequences.
And if you’re like so many business owners, you also care deeply about your employees. That means you want a plan in place to help take care of them — psychologically and emotionally throughout the transition, but also professionally and financially in the future. You don’t want an exit strategy that comes at the expense of employee well-being.
An ideal business sale and transition strategy is one that:
- Enables the selling business owner to access liquidity and plan for the future
- Delivers fair market value (or better) in terms of net proceeds from the sale
- Provides a smooth ownership transition with minimal impact on employees, customers, and partners
Even if you aren’t quite ready for a sale, it’s just good business to be aware of the process and the steps you need to take for a successful sale.
15 Steps to a Successful Business Sale
- Be Sure About Your Decision
- Communicate Early with Key Employees
- Explore All Exit Strategy Options
- Assemble Your Advisory Team
- Define the Scope of the Sale
- Get an Independent Business Valuation
- Find Your Buyer
- Inform Stakeholders
- Clearly Articulate the Reason for the Sale
- Create a Communication Plan
- Negotiate and Close the Sale
- Consult with Financial and Tax Advisors
- Introduce the New Owner
- Execute the Communication Plan
- Execute the Leadership Transition and Enjoy Your Next Chapter
1. Be Sure About Your Decision
It’s often not a question of whether there will be a sale, but rather when the sale will happen. Even so, before venturing on this journey, do the work to validate your choice. Why do you want to, or need to, sell? Who will be affected by the decision, and what concerns do you have about the process? Seek input from trusted advisors and family members if you need it.
2. Communicate Early with Key Employees
Leaders, managers, and other key employees will play a significant role in the process, so it may be wise to bring them into your sale plan early. You’ll likely need their help gathering information that potential buyers will want — and their collaboration can help offer assurance of post-sale continuity for the buyer.
3. Explore All Exit Strategy Options
Do you know what all your options are? Many business owners don’t give a lot of thought to this part. They assume they’ll be purchased outright by a third party, acquired by a competitor, or maybe bought out by management employees. But those aren’t your only options. In fact, in our experience with selling business owners, when they discover the benefits of selling to an employee stock ownership plan (ESOP), they get excited about the sale process.
Why? For one thing, they get the certainty that comes with knowing an ESOP pays fair market value. But that’s not the only reason selling owners choose an ESOP sale. Here are just a few more:
- Flexibility in structuring the sale transaction
- Control over the seller’s exit from the company
- Potential tax benefits to the seller and/or family members
- Tax advantages to the company
- Offering a valuable retirement benefit to employees
- Keeping the company character intact and protecting local jobs
4. Assemble Your Advisory Team
Your team of trusted professional advisors has been essential to your business success, so it makes perfect sense that their advice and guidance will help you succeed in your process of selling, too. Reach out to your business banker, accountant, tax advisor, and attorney. Expect to work with an independent valuation expert, as well.
The same goes for your personal financial interests. Your wealth advisor, tax accountant, and estate planner all have their roles to play in the process of transferring ownership and properly handling the sale proceeds.
5. Define the Scope of the Sale
Decide what’s included in the sale. Will it encompass all business assets, or will certain assets like real estate, equipment, or heavy machinery be excluded? Think about the business name and any intellectual property, and consult with your experts to decide the best path forward.
6. Get an Independent Business Valuation
Obtain an independent business valuation. The method or methods a valuation expert uses to determine your business value may vary depending on your chosen exit strategy. No matter who’s buying your company, an independent valuation can help you get a better understanding of your company’s value and the value of any assets that belong to it. This information can help you make more confident, informed decisions, and ensure a fair process.
A valuation professional’s research can also provide insights into your industry and the greater economic picture than you might get on your own, especially if you’ve been focused on managing and running the business. A wider perspective can also help you make strategic decisions to improve performance and profitability before a sale.
An independent valuation is required in the ESOP sale process, to ensure fair market value is paid.
7. Find Your Buyer
This step can be unpredictable. It can depend on a wide range of factors, including your industry, the maturity of your business, the economy, the strength of your brand, and a long list of other variables. Sometimes, venture capital firms may have an interest — and a lowball offer. Allowing a competitor to buy the company could put your employees at risk.
This is another area where an ESOP sale is unique, because it creates a friendly, internal buyer that’s guaranteed to pay fair market value — while allowing you to control the transition and make the key decisions about the company’s future.
8. Inform Stakeholders
Once the sale is certain (or as certain as a sale transaction can be before it happens), you’ll need to share the information with employees, vendors, and key accounts. Early communication helps make sure you control the narrative, alleviating any potential fears and uncertainties among stakeholders and protecting everyone involved from fear, anxiety, and potential disruption.
9. Clearly Articulate the Reason for the Sale
Make sure employees understand why you’re selling, and help them envision their future with the business. After all, they’ve played an important role in your success thus far; depending on the type of sale, their enthusiastic participation may be essential to the transition and the company’s ongoing success.
If you’re selling to an ESOP, this conversation can be particularly satisfying, because you get to explain to employees that they are becoming the beneficial owners of the company. Learning about how an ESOP works, and the plan’s potential to help them grow their personal wealth and improve their financial security in retirement, can help employees feel more invested in the outcome of the transition.
10. Create a Communication Plan
Design a communication plan for making the sale public after the initial transaction is complete. Press releases are a minimum requirement, but consider other channels to convey your message effectively. Will you reach out personally to key customers and vendors to let them know? Will you send an email announcement?
An ESOP sale is often an occasion to celebrate within the company that also creates an opportunity to educate employees and set expectations.
11. Negotiate and Close the Sale
Negotiations are about much more than sale price. They also include down payment, financing terms, settlement period, and any handover training that would keep you involved. ESOP negotiations are a little different, in that the seller negotiates with an ESOP trustee, whose fiduciary duty is to the ESOP and its owners — i.e., employees.
Often, the selling business owner chooses to remain with the company as an employee, at least for a transitional period. An ESOP sale gives the seller enough control to make those decisions, and to structure the sale for optimal financial outcomes.
A third-party buyer might offer a higher purchase price than fair market value. But did you know, an ESOP’s flexibility in structuring the sale, along with its tax advantages, enables some selling business owners to net as much as 110% of fair market value?
12. Consult with Financial and Tax Advisors
Work with your personal wealth and tax advisors to make informed financial decisions and investments post-sale. It’s an important step in achieving your long-term goals, and making sure your finances align with your personal values.
13. Introduce the New Owner
After the sale, it’s just good business to introduce the new owner all around. This demonstrates your confidence in the company’s ability to continue taking care of customers under new ownership, and helps establish trust.
If you choose to sell to an ESOP, you might expect questions about what it means to be employee-owned. Bringing management and rank-and-file employees into your newly established employee ownership culture is an important step in showing the benefits of an ESOP, rather than just telling people about them.
14. Execute the Communication Plan
Who controls communications about the transition? Once ownership has been passed from hand to hand, it’s up to the owner. Your team’s involvement early on in planning for transition communications can help influence the tone and direction of those communications — which can impact business outcomes over the long term.
If you sell to an ESOP and choose to stay involved and make a slower exit, you can help guide and control the narrative, as well.
15. Execute the Leadership Transition and Enjoy Your Next Chapter
In an ESOP sale, this step can be as quick or as extended as you feel comfortable with. Many selling owners find the transition to employee ownership invigorating to the business, and it’s a thrill to stay on as a leadership employee. You might wish to spend several years mentoring executive leaders and growing the business before you make your exit.
The same might not be true for other types of sales, of course. So be sure you’ve set aside emotional space and time to wrap your own mind around such a significant life change. Retirement experts recommend building a vision that makes room for activities that are important to you, building community and relationships to carry you forward, and focusing on ways to continue living out your core values.
Start Your Business Sale Process On the Right Foot
Selling a business can indeed be an emotional and complex process, and successful businesses are often built on a foundation of trust between leaders and employees. Knowing you’re choosing the best option for yourself, your company, your employees, and even the communities where you do business can help you move forward with confidence.
It’s easy to learn whether employee ownership may be the best option for your business. Reach out to ESOP Partners to request your no-cost, no-obligation ESOP Readiness Assessment. Just click below to submit your request, and an ESOP Partners expert will be there to help you explore employee ownership as an exit strategy.
