Managed sale of your services business to your employees
You built your business (yes, you did, not someone else). It’s time for you to move on, perhaps to retirement. You’re concerned about your legacy, about your employees, and about the value you have built. If you are like most successful small business owners when it comes time to move on, your whole exit plan is to ask “Now what?”
Small services businesses, usually with ten to 20 employees, have little value on the open market. The value is created by customer relationships unique to your employees. Your employees are like family and you want to make sure they still have jobs. They, however, do not have the money to buy the business from you.
You can try an Employee Stock Ownership Plan (ESOP), but that eats up a lot of money in attorney and accountant fees. It also invites the Internal Revenue Service to dinner at your table for years. There is another option.
You can cash out, leave the business up and running with employee owners with very little cash. Banks, of course, aren’t lending. But that does not mean that money is unavailable.
What we do:
Operations and financial assessment of the company
This will let you know what the company can do that it is not doing now in order to grow faster and more profitably. Growth will ultimately pay for the buyout. We don’t pull punches. You’re doing things now for very logical and good reasons. If you’re not prepared to eat the sacred cow for dinner, stop reading. Your business will change because it must.
This also produces a valuation plus/minus single digit percentage. And it identifies what the employees are buying.
Develop an executable strategy for growth with the current and future owners.
This is not difficult, just painful. The fundamental element of growth isn’t brains or quality, it is change. To grow at a rate that will pay for the buyout you will need to change many things. These can include how you deal with your customers, how your employees are measured and compensated, how you deal with competitors, even what you sell.
Honest discussion with everyone
This is about the steps and sacrifices needed to make this work. It’s about what you can reasonably expect and when you can expect it. If the new owners do not take ownership of the steps and sacrifices this will not work.
A contract of sale
This is drawn up by an attorney and a CPA whose client is neither the current owner nor the employees. The client is the future success of the company.
Managed capital raising
We use our relationships with multiple sources of private lending to secure the initial capital needed to make this work. That is usually between 5% and 7% of the agreed purchase price. We use the company assessment, the growth strategy and the contract to prove that the money is safe and the lenders can securely get an above-market return on their money.
The funds are placed in escrow pending completion of due diligence.
Completed due diligence
“Due diligence” accounts item by item for your contracts, the health of your customers, your employment agreements, your future liabilities and your current assets. You can think of it as a visit to a very curious proctologist.
Ongoing twice-monthly management advice for two years
This is provided by graduates of the world’s top-tier global management consulting firms. You are committed to this only if the sale goes through.
In our experience a company in transition from single ownership to employee ownership is very fragile. The urge to “do things the way we have always done them” is overpowering. Conflict between the old and new owners is guaranteed. Employee-owners tend to overlook problems because their friends are part of the problems.
We can afford for you not to pay us. We cannot afford for you to fail. The ongoing advice is a no-compromises part of this service.
How do I find out more?
Send an e-mail to firstname.lastname@example.org . We’ll schedule a free call to discuss your case.