One option is to consider selling the business to the company's employees. To decide whether or not this is a good idea, consider the following:

Pros

• Employees have knowledge about the operations of the company and experience working there so they can be effective right away.
• Strong relationships with key customers and suppliers are likely already developed.
• If part of the purchase price is paid as an earn-out or over time, there may be less risk with the knowledge of current employees and their skills.
• Consulting opportunities for the owner are more likely and can include a gradual wind-down in terms of ownership interest and/or his or her role in the company.

Cons

• Employees may not have as much capital or resources compared to a synergistic or financial buyer. To alleviate this, employees may partner with other buyers who have additional resources.
• Good employees are not necessarily good owners or managers. The role they currently hold will help to determine if it is feasible for them to manage the company.
• A sale with employees that is pursued and falls through can create problems if key employees become disgruntled.
• Other buyers may not want to bid against an employee group due to the potential loss of key employees. This may limit the potential purchasers if a sale to employees is pursued concurrently with a sale to a third party.

Once the pros and cons have been considered, common challenges that could lead to pitfalls may arise. As a general rule:

• Release information strategically and in stages to avoid too much or too little flow of information.
• Carefully monitor the status of negotiations. Tension in negotiations can translate into workplace issues that can harm the business.

If selling the business to employees makes the most sense, focusing on the process becomes very important. Start with preliminary discussions to determine interest before talking about price and the ability to finance. Allow employees to do their own due diligence and look closely at the financial statements and operations of the company. It is only after this that negotiations should commence. If a fundamental issue arises that suggests the deal may not be completed, both parties should be prepared to end the discussions so that the existing employee/employer relationship is not compromised.

Negotiations will typically deal with:

• Sale price
• Timing and structure of payment(s)
• How long/if the owner will stay on
• Assets to be included when the business is bought or sold
• Who assumes liabilities for leases and other items
• The percentage ownership to be purchased

It is also important for both parties to agree on whether there will be provisions for the acquiring shareholder to increase their interest over time and how a sale of a minority interest will be dealt with. These issues, along with many others, are commonly dealt with in a "Shareholders Agreement," which can protect the interests of both parties. Consulting with a lawyer throughout this process will assist in identifying the issues to be clarified during the negotiation process.

When looking to sell a business to employees ensuring that relationships are preserved is very important to retain the value of the business and arrange for a smooth transition. It should be clear early on if a sale to employees has the potential to work out. If it does not work out, there is always the option of a sale to a third party.