How to achieve an employee buyout

Alternatives to an employee buyout

There are several possible alternatives to an employee buyout and a number of advantages and disadvantages to these:

  • You may want to keep your business in the family. You need to be sure that you have a suitable successor. See transferring a business to a family member.
  • You could decide to carry on yourself - but this only postpones the succession problem. And working on after you want to retire is unlikely to be in the best interests of your business or yourself.
  • You could bring in new management from outside. But you would still own the business and retain ultimate control of how it is run.
  • Perhaps the most common method of exiting a business is a trade sale to another business. This can be time-consuming and disruptive, and involves disclosing confidential information to competitors. See value and market your business for sale.
  • Floating the business on a stock market can be an option if you have a strong track record and good growth prospects, though it's often a drawn out and costly process. See floating on the stock market.
  • Rather than selling your business to all the employees, you could opt for a management buyout. This can be more disruptive than an employee buyout and demotivating for employees, who do not participate in the buyout. An employee buyout can include all the employees and the management.
  • You might decide that the business is worth more if you close it down and sell off the assets. Of course, this means that employees lose their jobs, and your reputation could suffer. An employee buyout can sometimes save a business in this position.

Ideally, you should think about the alternatives and plan your exit well in advance. It is a good idea to consider your exit strategy when starting up a business.