Why Selling Your Company to an ESOP is Far Better Than Selling to a Third Party

by admin on August 23, 2012

If you are the proprietor of a good plumbing or hardware company, eventually you will encounter the possibility of having to quit your business – either because you wish to stop working or because you desire to cash in the value of what you have developed to engage in other pursuits.

Drawbacks of Selling to a Rival

The conventional method of exiting a business is to sell the company to a rival. However, selling your company to a rival has several drawbacks:

First, few proprietors relish the thought of selling to a rival. The rival may lay off and/or substitute many of your reliable workers, they may operate the company in a drastically different way than you have operated it, and they may even subordinate your organization’s name and status to its own name and status.

Second, selling your company to a rival could be a risky undertaking. You will need to reveal secret financial and operating details to your rival, you will need to undergo a thorough due diligence procedure, and frequently you will need to undergo protracted discussions with the purchaser regarding purchase price and buying conditions. After that, if the sale doesn’t happen, you might lose your competitive edge, not to mention some of your valued workers.

Third, selling your company to a rival for maximum profit demands ideal time and ideal foresight. If you sell too quickly, for instance, you will miss future growth. If, on the contrary, you wait a long time, you may see a reduced sale price.

Lastly, if you are not the only oner, there’s usually a discord between the older investors who wish to sell now and the younger investors who may wish to wait many more years before selling the company. Due to these as well as other factors, many owners of privately-held companies are switching to another option which avoids these issues and is also significantly more flexible. This option is selling to an Employee Stock Ownership Plan (“ESOP”).

If you wish to learn more about what makes ESOPs such an attractive business exit strategy, visit the Menke Group at www.menke.com.

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