We made the decision to sell a division of our company to our vice president of operations, Jason DeLong, a little over a year ago. In the previous decade, we’d expanded our business to include decking, pile driving, and remodeling, and found ourselves with more work than we were equipped to manage.
From that experience, we generated the following tips for selling a division of a company to an employee and ensuring a smooth transition:
1. Set an exit plan early
We set out a vision for our exit plan at least a decade before we decided to sell the pile driving division. Outlining that plan is key from the outset of a business—I consider it as critical as a sales or marketing strategy.
We knew our estimated timeline for when we’d ideally like to sell the business, and that rough timeframe, coupled with a surplus of work that we needed help managing, got the ball rolling about a year ago.
After our experience selling the division, we updated Treeline’s exit plan goals to include selling the remainder of the company to a group of employees, when we’re ready. Approach the sale knowing your company’s current exit plan and determine if selling fits into that.
2. Consider the personal relationships
DeLong joined Treeline soon after my husband and I started the company. There was an immense amount of trust between us by the time the sales process began.
Even with a high level of trust, it’s necessary to determine if the sale is in the best interest of everyone involved. Two key questions to consider:
• If something goes sideways during the sale, how will it affect our business and personal relationships?
• Is now the best time for the sale? Would there be a time that worked better logistically or financially for either party?
3. Be open to negotiations
We went to DeLong with an initial asking price, which he accepted. However, this won’t always be the case: Be receptive to negotiations, and remember that at the end of the day, this is a business transaction, regardless of personal relationships.
4. Help your employee with financials
It can feel unnecessary to include explicit boundaries in the contract if buyer and seller are on good terms, but it can protect your friendship.
DeLong had been with Treeline for nearly a decade, but he had limited experience with the financials involved in running a business. Like many first-time business owners, he needed loans to help get him started, but none of us were sure where to start.
Be open to helping your employee navigate the murky financial waters; you’ve got experience that a soon-to-be new business owner may not. We found when we approached banks together, it gave them a clearer idea of our end goal and helped determine which institution would be the best match for DeLong.
5. Create a detailed contract
It can feel unnecessary to include explicit contractual boundaries if buyer and seller are on good terms, but it’s especially important when personal relationships are involved. Laying out all terms of the sale in a legal document—down to the details, such as how long you’ll work together to transition the company or what kind of business guidance you’ll provide—takes the emotions out of the equation. It also minimizes the likelihood of messy disagreements after the ink dries.
The pile driving division, now a separate company named Rock Solid Pile Company, is completely in DeLong’s name. He still leases space in our building for his company and will often be our sub of choice when we need pile driving. We aren’t contractually obligated to use his company, but we trust them, we know them, we want to see them succeed.