As retiring baby boomers look to sell the small businesses they have run for years, top employees are often becoming the boss.
The new owners are likely to be general managers, chief operating officers or foremen who have worked for the company for many years and have the savvy to run the business well.
Between them, Chris Goodrich and Les Korsos have nearly 25 years at Ewing Sports, a company that sells soccer uniforms to school and other teams. Goodrich, the general manager, and Korsos, the sales manager, closed a deal for the Ewing, New Jersey-based company in July.
“We’d always talked about and were working toward this as an ultimate goal,” says Goodrich, who has known Korsos since they were in high school and played soccer together.
More employees are becoming owners as sales of small businesses surge. Sales are up 60 percent since 2012, with retiring baby boomers driving the momentum, according to BizBuySell.com, an online marketplace for companies. While there aren’t numbers showing how many companies are sold to employees, commercial attorneys see an increase. Twenty percent of the sales handled by Summit, New Jersey law firm Olender Feldman are to employees, up from a few percentage points a decade ago, says Managing Partner Kurt Olender.
Jeremy Spence bought the Laptop Guy earlier this year after working at the computer sales and repair business for more than a decade.
“I love being able to be the owner and all the perks that go with it — but there is that greater sense of responsibility that you to learn to deal with,” Spence says.
Spence now gets to make all the decisions for the Gahanna, Ohio-based company. Soon after he bought the company he had to find a new warehouse and move the business. He decided to make other changes, like picking out a new logo.
There have been nights when he had trouble sleeping because he was so wired. But owning the company has also made his life easier — he can leave early to pick his son up from school without having to ask for permission.
Selling companies to trusted employees can give retiring owners peace of mind that the business will thrive. Spence was the ideal candidate for the Laptop Guy, former co-owner Tonya Feit says.
“I knew that by him buying it, I was putting it in hands that are going to grow it and give it everything it needed,” she says.
Selling to an employee can make a transaction easier than with an outside buyer. The process is faster because the employee usually needs to do less due diligence — a prospective buyer’s inspection of a company’s books and evaluation of its operations.
Employees who’ve had key position with companies for at least five years are likely to win the confidence of lenders, says Erik Daniels, a small business executive with U.S. Bancorp. That’s particularly true today, when the employees have helped guide companies during and after the recession.
“They’ve been through challenging economic times. They understand the decisions that need to be made,” Daniels says.
If an employee doesn’t have experience in all facets of the business, banks will ask about the qualifications of the rest of the management team, says Ken Connell, a small business executive at Huntington Bancshares Inc. Banks may require all top managers to be part owners.
“They need to have some skin in the game,” Connell says.