When selling or transitioning to an insider, pre-sale planning is just as vital as it would be for an outside sale.
Insider transactions often involve rewarding a long-time and loyal employee, while also extracting value from the business for your own family and retirement at the same time.
In order to ensure a successful transfer you must remember these three primary objectives:
- Transfer to whom you want
- Transfer when you want
- Transfer for the price you need or desire
The most effective way to make this happen is to ease into the transition.
First, have the new owners replace you in the business operations, meaning that you will need to slowly transition out of the leadership position. Next, slowly transfer ownership without losing control. There are a handful of ways to do this, but you should establish objective standards for your potential successor to meet before the ownership is sold. These objectives should consist of receipt of purchase money, release of your personal liability to the business creditors, plans to pay off business debt, etc. From there, with the appropriate amount of time, you should begin transferring a substantial portion of the equity ownership. The final step is to transfer control when, and only when, all of your ownership objectives have been met.
Whether you have a group of individuals who would jump at the chance of buying your business, or you have a key employee in mind for the transfer, the sooner you plan and make decisions, the better.