Succession planning and selling your business to your employees?
You may have made the decision to retire or step back from your business. This requires careful planning and implementation to achieve a smooth transition, business continuity and a hassle free exit.
Structure
There are different routes to employee ownership or having your employees take over from you. You will need to decide on who you are going to sell to or how your employees are going to take shares.
You could sell to specific managing employees. This is sometimes referred to as a management buy-out.
Or you could decide to sell to an Employee Ownership Trust (EOT), which will then own the business for the benefit of all its employees.
You may want to have a partial exit. You could look to sell a portion of your shares, realising value and retaining some ownership for future growth.
How and when are you going to be paid?
You will need to consider the deal terms and, ultimately, how much you want to receive from your exit.
It may be that want to use the business’ surplus cash to form an initial payment to you. You should seek tax and accountancy advice in relation to structuring this and the tax treatment. We would look to work closely with your other professional advisors in structuring your exit.
Part of the price may be payable over a number of years or months (deferred consideration) or may be conditional on the performance of the business (earn-out consideration).
Seller protection
If the purchase price is to be paid over time then you may require the buyer to provide security for that payment. Potentially, that could be through charges over the buyer and company or through personal guarantees. That might be impacted by how the management team are financing the sale or any incumbent lender. We can advise on your options and prepare deeds regulating the relationship between the lenders/charge holders.
If the deal is based on an earn-out then you should look to include provisions in the sale agreement relating to how the business is to be ran in the earn-out period. For example, perhaps the buyer should not be able to make any material changes to the business without your consent or pay themselves big dividends when they should be paying the purchase price instead.
If you do want to retain some shares then a Shareholders Agreement will need to be negotiated. This is especially important if you will be a minority shareholder but want to retain a right of veto over certain key decisions.
Do you want to continue in the business?
You should consider whether you want to step away from your responsibilities when you sell. You may want to continue being employed or engaged but with reduced hours and a different role. If so, you should give thought to what you will be remunerated and any employment package (i.e. pension contributions, benefits etc.)
If you do want to step away on day one then you will need a solid management team in place. You may, however, be more incentivised to stay if the purchase price is paid over a long period of time to help ensure that the business performs well.
Getting your affairs in order
Typically, a buyer undertakes due diligence on the company to understand what they are buying and to decide whether to proceed. The existing management team may already have some information in relation to the business but you should consider what information is only known by you as the owner.
That could include details relating to the company’s finances, what the employees are paid or what the company’s lease or other long-term commitments are. Please see here for information that the management team and their solicitor may want to investigate.
How We Can Help
At Lawson West, we understand that selling or retiring from your business is a major decision and the result of many years of hard work. Selling a business is far easier to do when you have someone by your side who is experienced and can advise you on the best course of action and how to overcome any obstacles as they arise.
Our approach is to provide comprehensive support and guidance throughout the transaction. We look to make sure that any sale agreement is fair, proportionate and suitable to the deal you have negotiated. We work with you so that you can confidently proceed with your business sale and achieve a successful outcome.
Please call us on 0116 212 1000, or complete our free Contact Us form and we will get in touch as soon as possible.
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