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  • Financing Your Business Transition
    Game Plan
    In-Depth

    Option 2: Sell to Your Employees Through an ESOP

    AdvantagesAdvantages

    advantages

     
     
    • Familiarity and ease. You know, love and trust your family. Keeping it all in the family can give you a sense of comfort. Plus a healthy, thriving business could become a family legacy.
    • Continuity. If you have a strong bond with your children and they agree with your way of thinking and operating the business, this can provide the smoothest transition. You could plan for this—and groom them—years in advance.
    • Flexible terms possible. There are many ways to structure this type of sale. For example, you could receive a stream of income spread out over many years through an installment sale or a private annuity.
    DisadvantagesDisadvantages

    disadvantages

     
    • Family jealousies or rivalries. If your family members, particularly children, don’t get along or can’t see eye to eye, this could be a dangerous and risky situation. If you leave the business to children who don’t get along well,   it could be a recipe for frustration, resentment and possible business failure.
    • What if your children aren’t interested or qualified? Try to be objective. Are your children qualified enough and interested enough to take the business to the next level? Do they deserve this opportunity? What’s best for the business? Are your family member’s best qualified to take the reins or is an outright sale to another firm or a sale to the company’s employees the smarter move?
    Deciding FactorDeciding Factor

    deciding factor

    Do you have family members who are capable of running the business—and have the knowledge and desire to do so? Also, consider how this business sale may change the dynamic among your loved ones.

    Game PlanGame Plan

    Game Plan

    • If you haven’t set up an ESOP, do it keeping in mind the eventual sale of the firm to its employees.
    • If you have a well-established ESOP, and are close to bowing out of the business, meet with your accountant, attorney, ESOP consultant and a valuation expert to prepare for the transfer of ownership.
    • Learn more about ESOPs here.