Compensating Workers in the Business Sale

admin May 26, 2014 Comments Off on Compensating Workers in the Business Sale

In a business sale we often restrict our thinking and end up hurting our family. Cliff was thinking this way when he messaged, “Tom, I am 63 this summer and have owned the business almost 25 years. Had a record year last year and I am getting ready to start a transition. None of my kids are interested. Because of the loyal group of employees I have, I would like to transition to an owner/manager similar to me. I have found a couple of prospects but still have yet to make a definite commitment. “

What’s wrong with that? Well, “because of the loyal group of employees I have …. I would like to transition to an owner/manager similar to me.” That could be a problem in a business sale for it could restrict our pool of successors to “someone similar to me” who ends up paying less than “someone not like me” who may pay more.

Workers in Business SaleThink about it.

Most of us have loyal employees who have been with us for years and we certainly want to see them continue to have a great workplace. But haven’t we paid our workers fairly? Yes, we have. And isn’t that their reward for their work? Yes, it is.

Now, I’m not cold-hearted. We may want them to share in our final success. If so, then take a portion of the proceeds from the business sale and give it to them in some way. Your lawyers and accountants can help you here.

But don’t try to control from the grave. That’s like your rich aunt leaving you money but adding so many restrictions that we can’t spend it.

You run the business until you don’t. Then someone else runs it.

It’s estimated that 90% of all businesses are sold in an asset or bulk sale. That’s where you sell the producing assets of the business (presses, furniture, fixtures, accounts and more) but your legal entity (S or C corporation, LLC, proprietorship, etc.) continues as you wind down the final affairs.

Here’s the point in an asset sale: your workers cease working for you on the day of sale. The buyer may (or may not) hire them to continue working for the new business. The king is dead; long live the king meaning the new person with the gold makes the rules.

Too many times, a business sale flounders on the owner’s insistence on protecting the long-time loyal workers. You cannot guarantee your workers a job with the new company. You cannot guarantee them that they will hold the same position after the business sale. It is up to the workers to be of value to the new owners and it is up to the new owner to pay them fairly.

Obviously, any new owner realizes that the worth of the business is also based on the worth of the workers. None that I know of would intentionally do harm to them and, in most cases, workers are hired to do the same job for the new owner as the old. My point to you here is that this isn’t necessarily the case however.

So what?

We should look for a buyer who provides the best deal for us and our family. In most cases that can be translated into the buyer who pays us the most. For instance, an all-cash business sale is better than one where we finance the buyer because it provides us cash now.

To accept a lesser deal in order to protect workers is faulty thinking.

Look for the best deal. Share part of the proceeds with the workers if you feel it is appropriate. But don’t put blinders on up front and take less for the business than you could otherwise obtain. And don’t begin the process by limiting your pool of buyers. After all, you could find a down-sized executive with no printing experience who is willing to pay you more than a fair price in all-cash business sale. And you’ll never know that until you really market the business.

Hope this helps …

Tom Crouser

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