Your key employees are usually the lifeblood of your business and its success. They play a role in every aspect of your business. So when it comes time to sell, it’s no surprise 31% of business owners indicated they were interested in pursuing a transfer to key employees. What are some aspects that make a transfer to key employees so attractive to business owners? This article provides an overview of the advantages of an ownership transfer to key employees.
Advantages of transferring your business to a key employee:
- Financial Security: Financial security is often the primary reason for why business owners look to transfer their businesses to key employees. With proper planning, business owners gain four distinct advantages in terms of financial security by transferring to key employees or management.
- The Time Factor: Business owners who transfer to management afford themselves the luxury of extra planning time. Having extra time to prepare gives owners options if something unexpected were to happen, such as disability or receipt of a huge inheritance.
- The Time Margin: The time margin is the time that owners spend developing interest outside of the business. An ownership transfer to key employees gives owners a sizable time margin to pursue new interests while receiving income and maintaining control. This also allows those key employees time to gain experience running the business without the owner. If the successors fall short in their performance, the original owner is still in control and has the ability to rethink their exit strategy.
- Tax Consequences: Transfers to key employees can minimize tax consequences while keeping the cash in the business. If you were to sell your business to a third party you may face a significant tax bill.
- Values-Based Goals: Business owners get the best chance at fulfilling their values-based goals. The top three values-based goals are legacy and culture, benefits to employees, and family harmony.
- Successor: In these transfers, buyers are prequalified through on-the-job training and observation. These key employees are motivated to stay with and grow the company, just like any other owner.
As with all good things, business owners who are looking to transfer their businesses to key employees face obstacles. When discussing the options in an ownership transfer to key employees, it’s important to work with advisors skilled in designing this type of transfer. You must also allow adequate time to complete the transfer. IHP Advisors has a team in place to help you decide if a transfer to key employees is the best exit option for you.
Please contact us to see if we can help you. Call 801-341-9416.
The information contained in this article is general in nature and is not legal, tax or financial advice. For information regarding your particular situation, contact an attorney or a tax or financial advisor. The information in this article is provided with the understanding that it does not render legal, accounting, tax or financial advice. In specific cases, clients should consult their legal, accounting, tax or financial advisor. Exit Planning is a discipline that typically requires the collaboration of multiple professional advisors. To the extent that our firm does not have the expertise required on a particular matter, we will always work closely with you to help you gain access to the resources and professional advice that you need. Advisory services offered through EWG Elevate, Inc. dba Protection Point Advisors.