Successors don’t always have to be related. For a business owner unable to hand down a company to a relative – and uncomfortable selling to an outside party – a key employee may make a logical heir.
With their industry acumen and vested interest, long-time employees may stand a better chance of maintaining business performance than external investors. Of course, a lack of entrepreneurial experience can also make employee ownership a risky bet. Ultimately, the decision to sell a chauffeur business to an insider will depend on the individual company, owner, and employee.
By buying a limousine business, an employee has the ability to both reduce and increase risk. In many ownership transfers, employees and customers bail during the transition period. This can be caused by a lack of faith in a new owner, too many hasty changes, or a decline in business performance as a result of the sale process. When an employee inherits a company, however, it may be easier to retain relationships with important staff and clients. On the other hand, if friction already exists between the employee assuming ownership and some existing employees or clients, inevitably some staff will depart and some clients will exit. A new owner without proven business savvy can scare suppliers, employees, and investors whose livelihoods rely on company performance. Whether the pros of a sale will outweigh the cons ultimately depends on the unique circumstances surrounding the sale.
You can’t sell your business to a buyer if they can’t afford to purchase it. Because pricing is based on value, it is crucial to have the valuation of a limo company performed, preferably by an unbiased third party. You shouldn’t have to settle for a price below market value just because you’re selling to an employee.
Once you’ve determined price, you can consider whether a sale is realistic. Does your employee have capital to invest? Are they able to obtain traditional bank financing? Can they take advantage of SBA goodwill financing? Because first-time business owners often run into trouble securing a limo loan, you may need to carry a note to get a deal done. It’s also wise to request that the employee fill out a statement that illuminates financial data such as credit and debts. A person’s personal finances are a strong indicator of how they will handle their business finances.
No matter how popular an employee is among customers or how devoted they are to a limo business, it won’t compensate for a lack of business sense. You don’t need a degree to manage a business competently, but you do need organizational, leadership, and financial skills. If your intended successor has had a successful tenure with your company, they likely have a firm grasp of the industry. Often times, the attributes that make a good employee also make a good owner.
There is no surefire way to know if selling to an employee is the right strategy for your business. However, if you listen to your instincts and hold your prospective successor to the same standards you would an outside buyer, you will increase your odds of a successful sale.