Mission West CDP/ Cooperative Development Center/ Sell Your Business to Your Employees

Sell your business to the people who already run it.

When you're ready to retire, your employees can buy the business through a worker co-op. It stays open, the jobs stay local, and you're paid a price set by a professional valuation.

Talk to Taylor See how the handoff works
55+The age of over half of U.S. owners with employees

Most of them don't have a written succession plan.

Asked why, owners most often say it's too early or they're too busy. The trouble is that a sale to anyone takes a year or two to do well, so the time to start is before you're ready to leave.

U.S. Census Bureau, Annual Business Survey
Your options

Three ways it ends when you retire.

Plenty of main-street businesses have no family member ready to take over. That usually leaves three choices.

Close the doors
Sell to an outside buyer
Sell to your employees
The jobs
Gone.
Up to the new owner.
Stay with the people doing them.
The buyer
No one. Equipment and inventory get sold off.
Can be hard to find for a small business in a small town.
Already knows the customers and the work.
Your price
Whatever the assets bring.
Whatever a buyer will pay.
Set by a professional valuation, then negotiated.
Your role after
None.
Usually out at closing.
Can stay on as an advisor or board member while you're paid out.
The handoff

You don't have to leave the day you sell.

Since 2016, USDA has let rural businesses fund a conversion in stages over five years while the selling owner stays involved. Here's one way a staged buyout can play out.

Year 0

Value it and agree

A professional values the business. You and an employee committee agree on price and terms.

Closing

The co-op forms

Employees buy in, the co-op is incorporated, and the first stage of the sale closes.

Years 1–5

You stay involved

The co-op buys the rest in stages while you advise and get paid on your seller note.

The finish

Your crew owns it

The note is paid off and the business belongs to the people who run it.

Every deal is different

Some owners sell everything at once and stay on as a consultant for a year. Others stretch it out. The point is that you set the pace with your crew, not a buyer you've never met.

How it works

Ten steps, about one to two years.

About as long as any business sale. Expect to have an accountant, a valuator, an attorney and a lender involved.

Decide
  1. 01Bring in an advisor

    Start with someone who's worked on conversions. We can help you get going.

  2. 02Check feasibility

    Can the business carry a buyout, and are there employees ready to step up?

  3. 03Get a valuation

    A professional sets the value, like any sale.

Prepare
  1. 04Test the financing

    Make sure the business can carry the payments.

  2. 05Tell your employees

    Explain how ownership would work and see who's interested.

  3. 06Form a steering committee

    Employees, paid for their time, work through the details with you.

Make the deal
  1. 07Agree on terms

    Price, payments, financing and governance.

  2. 08Write the business plan

    The plan lenders will review.

  3. 09Incorporate and close

    The co-op is formed and the sale closes.

After
  1. 10Keep training

    The new owners keep learning to run the business and the board, often with you still involved.

Adapted from a 10-step conversion process developed by the Cooperative Development Institute.

Paying for it

How your employees pay you.

Most buyouts stack three kinds of money. A lender covers the biggest share. You carry part of the price as a note the co-op pays back over time, generally about a quarter of the deal. And each new owner buys in. The median buy-in at U.S. worker co-ops is $875.

Lenders that specialize in co-op deals include Shared Capital Cooperative, LEAF and National Cooperative Bank. Mission West's own loan programs may help too.

The rural advantage

USDA's Business & Industry loan guarantees are built for rural areas and can fund a staged conversion. SBA loans are technically open to co-op buyouts, but a personal guarantee rule still makes them very hard for co-ops to use.

Where the buyout money comes from

An example, not a formula. Real deals range widely.

1999

It's been done in Montana.

The founder of Big Timberworks, a timber-frame company in Gallatin Gateway, sold it to the employees through an eight-year buyout rather than risk the jobs with an outside buyer. New members buy in after a two-year probation.

Which model fits

Worker co-op, ESOP or trust?

Most small businesses

Worker co-op

Size
Under about 25 employees or $5M in revenue
Setup
Low cost
Control
One owner, one vote
Buy-in
Yes, employees invest
Larger companies

ESOP

Size
25+ employees, $5M+ in revenue
Setup
Six figures
Control
Limited
Buy-in
No
In between

Ownership trust

Size
Roughly 10 to 25 employees
Setup
About $50K–$100K
Control
Varies
Buy-in
No

Tax note. If your business is a C corporation, Section 1042 of the tax code may let you defer capital gains on a sale to a qualifying worker co-op. Most LLCs and S corps won't qualify without restructuring first, so check with your tax advisor.

Start early

Thinking about your exit?

The earlier you start, the more options you'll have. Tell us a little about your business and we'll follow up within one business day.

More on co-ops: Start a co-op · Strengthen your co-op · Own buildings together · Co-op FAQs