As with most important decisions, pros and cons exist in making the choice to purchase the business that employs you. And some elements of the decision are both a pro and a con. Such is the case when you decide to purchase your employer’s business. As an “insider” you are generally very familiar with the operations and personnel involved in the business, which gives you a distinctive edge over an outside purchaser. At the same time, that advantage can create a blind spot as you make a buying decision based on your presumption that the business will continue operating as it had in the past, prior to you taking ownership. Even if no immediate changes are made in operations, there may be changes in performance as the people who knew you as a fellow employee adjust to the idea of you as their new “boss”. That being said, however, the advantages an insider has in purchasing a business generally outweigh the challenges.
Chris Carlson is someone who bought his boss’s business. Chris joined West Michigan Grinding in 1996 as a machinist. After graduating from Ferris State University in 2000, he advanced to a position in sales. From early on, Chris thought that he would eventually like to buy the business from Don, so he continually accepted new responsibilities as he grew more emotionally invested in the company. Chris moved from sales to purchasing and then on to quality manager after a couple of years. In 2011, he was made general manager to assist owner Don Martines running the business. Shortly thereafter, he was basically running the business for Don.
After investing more than a decade into learning how West Michigan Grinding operated from the ground level up, Chris Carlson finally felt prepared to take the leap and purchase the business. Banks and the United States Small Business Administration (SBA) are usually very supportive of employees buying a business in which they have years of experience. The learning curve is relatively flat compared to a buyer from the outside purchasing the business, so the transaction is generally considered a good investment for the financial institutions involved.
Chris came to Left Coast Capital to be prequalified for the purchase. We worked with Huntington Bank through the process, and referred Chris to a CPA and attorney to assist with the transaction. After getting his finances and documentation in order, we were able to present Don with an offer. We worked with Chris and Don to negotiate an equitable price with fair terms, and Chris became the new owner of West Michigan Grinding in October 2020. Since Chris was already operating the business for Don before the offer to purchase was made, the transition of ownership was largely a formality, and the business continued “as usual” during what can sometimes be the tumultuous period of transition.
There are many reasons why insider deals happen. Sometimes it is a generational transition, but frequently it is just a change in life circumstances for the owner, or an interest in acquisition expressed by an employee. Chris Carlson’s story is an almost picture perfect example of how to successfully integrate and purchase the business that you work for.
If you are thinking of buying your employer’s business, or know of someone who is thinking of purchasing the business they work for, contact us for a free phone consultation to discuss the pros and cons of the specific business and situation. We can help you to determine if investment is right for you and how to fund the acquisition.
Eric Seifert, Principal
Left Coast Capital Resources LLC
297 West Clay Ave. - Suite 101
Muskegon, MI 49440