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The Pros and Cons of a Company Buyout

Published by Debbie Parrott on 29 Dec 2017

Pros and cons of a company buyout

 

Sometimes when a company is looking to reduce costs and employees, larger companies may offer a buyout to certain employees before dealing with layoffs. Buyouts can be good for both the company and the employee. Employees that take the buyout get a nice sum of cash and companies can reduce high wage senior positions and hire new employees at an entry level wage.

 

Here are some pros and cons for taking a company buyout:

 

Pros Cons
  • If you accepted the buyout you now have a lot of cash and freedom that you didn’t have before. You can pay off your debt, invest, travel, or start that new business you have always wanted.
  • If you think about it, it’s not usually all that much money and won’t last as long as you think, especially after the tax man gets his share. Consider how much you need to make ends meet for a year. If you got a $100,000 buyout (before taxes) and need $70k to get by for a year, that only leaves you will $30k for the following year. You may want to find employment before the money runs out. A buyout may leave you with a lot of extra cash but it also leaves you without a job.
  • If you didn’t like your old job much, the buyout cash can be used to support you while you start your own business, hunt for other employment, or go back to school to start a whole new career.
  • After taking some time off you may decide to get back into the rat race. Sometimes finding a new job could take longer than you think due to some stiff competition in your field.
  • If you’re close to retirement age you can use the extra cash to get you through until you can retire. You can start receiving Social Security benefits as early as age 62 and pull money from your401k or IRA at age 59 1/2 without penalties.
  • Early retirement may mean that you will have less to live on as you get older. Retiring at age 62 you will receive 25% less benefits. Those born in 1960 or later and begin collecting benefits at 62, may lose 30% of their benefit amount. Exiting the workforce early will also mean that you won’t be able to contribute to your 401k and IRA accounts.
  • Depending on your employer, some larger companies may sweeten the buyout deal by offering to put extra money to your pension, or keep you on the company insurance until you are old enough for Medicare.
  • Your health insurance premiums may cost you more. You may be offered the COBRA option for your insurance and may have to pay the entire premium. Or you may have to purchase your insurance through a private company.
  • You will be leaving on your own terms. If a company isn’t doing will, at least you don’t have to worry about getting the “pink slip”.
  • You may not receive pay for vacations or personal time. Find out if there is a way to get paid for it or use the paid time off before you take the buyout. If you were due for a bonus at the end of the year see if you can adjust the timing so you get your bonus and the buyout.

 

At Summit CPA we offer multiple resources that will help you get on the right track.
Contact our office at 866-497-9761 to schedule an appointment with our Virtual CFO.

WE SPECIALIZE IN VIRTUAL CFO SERVICES

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