Follow Dallas Linkedin
Email Dallas Email
Financial
Dec 1, 2017

What Could Go Wrong When Transferring Ownership to Employees?

Sponsored Content provided by Dallas Romanowski - Managing Partner, Cornerstone Business Advisors

We often hear owners say they want to transfer their businesses to third-party buyers when they first encounter the concept of exit planning.

However, we’ve observed that in many completed exit plans, owners actually choose to transfer their businesses to employees. Some reasons for this decision are that employees know the culture and values of the business, there is a desire to keep the business with people the owner knows and trusts, and employees’ inherent desire and commitment to grow the business.

As owners start to consider options that include transferring to employees, they can forget to ask two important questions:

  1. Do the employees I want to succeed me even want my ownership?
  2. If so, how can I motivate each employee to stay and make the financial commitment?
Your love and enthusiasm for your company can cause you to skip these critical first questions. What may seem like a good fit to you can lead to chaos if the most important employees - often referred to as “key employees” - cannot, will not or just don’t want to accept ownership.

Fortunately, there are three things you can do to address this issue.


Talk to Your Key Employees

Knowing whether a key employee would consider and be capable of ownership is the most important – but often most overlooked –step in transferring to a key employee. Many owners take pains to convince themselves that a certain key employee – or key employees – would be a perfect fit, but fail to ask the employee whether he or she is even interested in ownership.

For some key employees, just being a key employee is more than enough for them. Others simply don’t have the skills to transfer into ownership.

The best way to address these issues is to talk frankly with them about their aspirations and what they’d do if they were owners.


Incentivize Your Key Employees

Key employees who are interested in ownership can be scared away when they learn that ownership transfers aren’t a gift. While this may be unreasonable, it’s remarkably common.

The idea of having to spend their own money to own the company can be overwhelming, especially when key employees don’t have the funds to pay for a share of ownership upfront.

Fortunately, you can quell this concern by creating and implementing an incentive plan that focuses their attention on growth and rewards them by turning performance into ownership opportunity.


“Handcuff” Your Key Employees

A key aspect of successful incentive plans is assuring that they handcuff employees to the business. Handcuffing key employees means providing lucrative payouts, based on performance, that take some time to fully mature. Key employees who leave the company too soon walk away from their benefits. This is an important element in an incentive plan that is intended to lead to an ownership transfer to key employees.

Talking, incentivizing and handcuffing are the three basic aspects of most successful insider transfers, but they’re also critical functions of successful business planning in general. We encourage you to learn more about each element before you begin the insider transfer process.

If you’d like more information and assistance on how to best talk to, incentivize, and handcuff your key employees – whether you’re looking to exit your business soon or not at all – contact us today.

© Copyright 2017 Business Enterprise Institute, Inc. All Rights Reserved
 
As a member of the Business Enterprise Institute (BEI), Cornerstone Business Advisors is an authorized distributor of BEI’s content and Exit Planning Tools.

The Cornerstone team includes former C-Level executives, successful entrepreneurs and advisers who offer unmatched experience in delivering advanced, custom-tailored, results-oriented solutions for business leaders. We developed the Performance Culture System™ to help clients implement best practices and drive high performance throughout their organization. For more information, visit www.launchgrowexit.com, call (910) 681-1420 or email [email protected].
 

Other Posts from Dallas Romanowski

Bizjournalblockad
Ico insights

INSIGHTS

SPONSORS' CONTENT
Junegunter teachinghorse headshot 5721115557

Say Hello

June Gunter - TeachingHorse
Tidewaterinvestmentco merrettemoore headshot

Looking Beyond Your Financial Advisor For Private Company Investments

Merrette Moore - Tidewater Investment Company
Aarp suzanneheadshot 300x300

Be Aware Of New Summer Scams

Trending News

In Downtown Wilmington, Live Oak Leases Space For New Small Business Center

Cece Nunn - May 11, 2021

Gas Shortage Reaches The Port City

Christina Haley O'Neal - May 11, 2021

Rx Restaurant And Bar Reopens With New Dining Space

Jessica Maurer - May 12, 2021

More Than 250 Apartments Proposed For Scotts Hill Site

Cece Nunn - May 12, 2021

Tropical Sno Opens On Carolina Beach Road

Jessica Maurer - May 12, 2021

In The Current Issue

Company Rolls Into Communications

Nathanael Conway, CEO of Wilmington-based Blue Roll LLC, is working on branching out his production company into the communications world....


Topsail Steamer Continues To Gather Steam

Inspired by her experiences of summer seafood cookouts on the Jersey Shore, Danielle Mahon decided to share the experience of a low country...


Meet The 2021 CEA Winners

While vastly different, what the 11 companies and organizations do have in common is being chosen by a panel of judges as CEA category winne...

Book On Business

The 2021 WilmingtonBiz: Book on Business is an annual publication showcasing the Wilmington region as a center of business.

Order Your Copy Today!


Galleries

Videos

Trying to Grow a Business?
2020 Health Care Heroes
2020 WilmingtonBiz 100