You have a growing business and one of the keys to your success has been your people. Finding good people is tough, keeping them can even be more of a challenge. So how do you keep your key employees? More money is not always the answer as working conditions, qualify of life and other factors enter into a person’s thinking process when furthering their career. As a business owner, you want to secure the long-term commitment of your key employees — to ensure the company’s ongoing profitability, and also to maximize the value of your business for a potential future sale. So now you want to transition ownership and management to key employees of the company. How and what do you do to maximize the value of the company by doing so?
There are basically four ways to secure the long-term commitment of key employees:
- Grant employee stock options
- Establish a share savings plan
- Equity buy-in
- Establish an employee profit sharing trust
There must be an orderly transfer of ownership and/or management that minimizes disruption of operations and financial hardship on the firm. What is most important is that you don’t assume anything when drawing up documents for employee ownership; and in most cases granting ownership should be based on meeting certain milestones or criteria. Ownership documents must be very thorough and well thought out so that there are no misunderstandings as to the expectations of both the owner and the key employee receiving ownership. Buy back provisions based on termination, death or disability should be considered along with a host of other factors.
This brief overview is simply a microcosm of the due diligence that goes into transitioning a firm’s ownership to key employees over time. I have found with my own businesses in the past, employee ownership is a valuable tool in retaining key employees and growing the business (they now have skin in the game). The real value to employee ownership is that even though you may be giving up a part of the business, the long term benefits are generally very substantial because everyone wins if and when a company is sold. If you would like to learn more on how this is done, please contact me at mlewis@simmonswhite.com or call me at 504 905-4646. Wishing you great success as always…….