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Want To Sell Your Business? Your Best Buyers May Be Your Employees By Michael Levin

During a recent interview with writer Michael Levin, Jane Johnson of the Business Transition Academy discussed options for business owners who were planning to sell and may have been derailed by the current economic crisis, in addition BTA’s upcoming workshop that is designed to help beleaguered business owners start planning for how to rebuild their business value and get out: Rebuild Your Business with Your Exit in Mind.

The dream of most small business owners is to sell the business, get a big check, play a lot of golf, travel, or otherwise live happily ever after. However, the current COVID-19 crisis has put that dream on hold for many of them.

"Unfortunately," says Jane Johnson, President of Business Transition Academy, Inc. and the co-author of Cashing Out Of Your Business - Your Last Great Deal, "even before the pandemic and shutdown, business brokers were turning down 70% of the business owners they're asked to represent. And for the 30% of businesses that brokers take on, there aren't always buyers, or the sellers think their businesses are worth more than any buyer will pay." These statistics are likely to get worse for the foreseeable future.

"Even under normal circumstances, oftentimes the business isn't ready to be sold," Johnson says, "or the owner isn't ready to sell. Now, as a result of the economic slowdown, many businesses have lost significant value and owners are challenged to rebuild and increase business value before they can exit and gain their freedom.

While it may look pretty dismal for owners who want to sell, there may be another way out for them by selling internally. Johnson says that the most overlooked group of buyers for small businesses is the employees themselves.

"There's a lot of logic to selling to your employees," Johnson says. "Most owners don't even consider the option, and as a result, they eventually just close the business down. They don't get rewarded for decades of hard work and their employees lose their jobs. That's the opposite of what most business owners want to accomplish."

Johnson says there are numerous benefits to selling to employees that most business owners have never considered.

"First," Johnson says, "you position the business for success and continuity for the next generation of managers and customers. Owners love their businesses. So, the idea that their businesses can survive and thrive into the future, without them at the helm, is extremely exciting to them."

"Also, they know that in an event of a sale to an outsider, there's no guarantee that current employees will keep their jobs. This is a great way to take care of the people who have worked so hard, often for decades, to make the business successful."

"Next," Johnson says, "you may be able to get more money in a sale to your employees than you could get on the open market. "This may seem counterintuitive," she notes, "but there are a few reasons this is the case.

Unlike an external sale, which is dependent on what a buyer will pay, within reason, an owner may be able to pick a value that he or she wants to receive from the sale - as long as it's supported by cash flow in a reasonable period of time. It's also much easier to be tax efficient with an internal sale, and the fees are usually significantly less than they would be for an outside sale."

"Most business owners when confronted with the idea of selling to employees, don't even believe it's possible," Johnson adds. "Their first reaction is that the employees simply don't have the money to take it on."

"In reality, many businesses generate enough income to buy the owner out over time. We've educated and mentored multitudes of business owners and helped them accomplish their successful exit with this very approach. Everybody wins."

Another reason to sell to employees: owners can keep control for a specified period of time. Johnson says that when you sell your business to the team, you may be able to stay involved for several years. During that time, you may continue to draw a salary commensurate with your level of involvement, enjoy all the benefits and write-offs of owning a business, and retain legal control. So you're able to make sure that the transition is smooth and effective.

Johnson can tell you stories about businesses that were sold to outsiders and then all but run into the ground by new owners who proved incapable of merging the new business into their preexisting enterprise.

"Sometimes it's a question of a culture fit," Johnson says, "and sometimes, the buyer just doesn't have the entrepreneurial talent to manage the new acquisition.

"Selling to an outsider may be the right strategy for some owners in certain situations, but we urge owners to also think about selling to an insider before making a final decision. All things considered, you may be better off, in many ways, if you sell to your team members. It can be a great option and one that more business owners ought to consider before they contact a broker."

Johnson successfully sold her first company to an outsider in 2004, despite the odds and the lack of information in the marketplace for business owners on how to exit. This motivated her to assist other owners by starting Business Transition Academy, which delivers impartial exit planning expertise and strategic guidance for transitioning business owners through comprehensive education, tools and mentoring programs.

Business Transition Academy wants to help beleaguered business owners who are looking for a way out of their businesses. To help businesses emerge from this crisis stronger, more valuable, and more sustainable in this new world, they have developed a new owner workshop: Rebuild Your Business with Your Exit in Mind.

Owners will come away from the workshop with a step-by-step process and practical tools they may use to develop a business exit and growth plan. Owners' chances of being able to sell, either to internal or external buyers, when profits return, will greatly increase if they have a strategic plan.

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