Is Employee Ownership for Your Company?

Introduction

As a matter of principle, there are few limitations on the kind of business that can be employee owned. The limiting factors are mostly factors that apply to all businesses. A business that cannot provide enough income for its owners and employees to survive should either be revived or be allowed to close. Let us look at some of these factors:

Culture

Does the company already have a culture of unity, collaboration, corporate pride and strong morale? It is possible to convert a business with a tradition of authoritarian and vertical leadership. It just takes a little more time and effort than if those things are already in place.

Health

Is the business financially healthy? Is the industry contracting or expanding? Is there a lot of competition? Does it have a process for acquiring and retaining customers? Does it have a diversified customer base? Is it dependent on the owner’s presence? Can the business generate enough income for the employees to live, pay off the owner as well as any outside financing? If there are concerns in any of these areas, can they be remedied? How long would that take?

Other Exit Options

Are there any better options such as family members, management buyout or sale to a third-party? What are the tax ramifications of all of these options?

Employee Readiness

Are key employees likely to remain with the company after conversion? To what extent will they be able to run the company on their own? What is needed for them to be able to do that?

Customers

Are customers likely to remain with the company after conversion?

Owner Role

Is the owner willing to take on the additional educational tasks needed for a successful transition? Will he or she be willing to stay until company has been stabilized under new management?

Conclusion

You have probably realized by now that whenever adjustments have to be made, they take time. Therefore, scheduling enough time will increase the chance of successful conversion.

Although it may be possible to rescue a business that has been neglected, is declining or even failing, the chances of a successful transition increases dramatically when those issues are addressed ahead of time instead of after.

Exit Planning: The Definitive Guide

Selling to your employees is in many ways similar to exiting any of  the traditional ways. You still have to set some goals for yourself. You still have to have a salable business with transferable value. Most of the things you have to worry about apply to the sale of any other business.