Planning an Exit Strategy – Employee Considerations

Some areas of importance that should be considered when selling your business are those involving the key employees and “non-key” employees that work for you in your business.  Sometimes business owners only focus on the past financial profits when considering the sale of their business.  They should always remember that a purchaser will look beyond the numbers and want to review who works for the business.  Remember the purchaser will be inheriting most of the employees – good and bad….  Consider the following:

  • Are there any “problem employees” that a purchaser will not wish to hire?
  • Will some of the employees become redundant and need to be let go?
  • Are there key employees that a purchaser will be depending on after the sale takes place?

A private business owner needs to prepare well in advance of a sale when looking at an exit strategy.  Problem employees should be dealt with and key employees should be locked in with employment contracts that include “non-compete” clauses.  This will ensure that the business is attractive to multiple buyers and a purchaser will not be able to easily discount the selling price because of any potential severance costs associated with problem employees.

It is a good idea to always consult with a good employment/labour lawyer when looking at these issues.  I came across an interesting article on “non-compete” clauses and the inability for them to be enforced in this good Financial Post article –  Check out the article, I think it just reinforces the notion that it is prudent to have a good lawyer drafting agreements for you.

Dealing with employees is just one of the items that reinforce the notion that it takes a long time to develop a good exit strategy if and when it comes time to retire from the business.

If you are a small business owner and would like to discuss your Estate and Succession plans, do not hesitate us to give us a call.  It is never too early to start thinking about this type of planning, waiting too late can cost you money and may make it impossible to find a suitable buyer for your business.
T: 905-401-0023 F: 905-892-3543
B.D. Karner Professional Corporation
209 HWY. 20, Suite 1 Fonthill, Ontario, L0S 1E6