Selling a business involves two key aspects:
- Exchanging future cash flow for an upfront cash payment: This is true regardless of whether you sell to an outside buyer or transition to employee ownership. In both cases, you will receive fair market value for the portion of the business you sell.
- Eliminating the need for direct involvement in operations: If you want to reduce your workload or fully exit the business, you'll need to incentivize your employees to keep the company running smoothly. Employee ownership creates a strong incentive for them to do so. You can also choose how much future cash flow you want to access while still working and how much you'd prefer to receive later. This helps determine how much ownership to transfer to employees. While employees may not contribute their own cash in many EO transitions, you still receive a fair sale price for your business. Leveraged buyout based employee-ownership structures can align the interests of the owner, employees, and financiers, creating a mutually beneficial outcome.