Perks and Challenges of a Third-Party Sale

As you look at the options available to you for exiting your business, selling to an unrelated third-party buyer often sets up owners to obtain the largest sum of money for the company in the shortest time.

Here are a few perks and drawbacks to be aware of when deciding to sell to a third-party.

Perks: Money

Outside buyers may have the capital to pay for ownership in full, unlike family members or key employees. This can mean that you won’t have to accept a promissory note (or it may be a smaller part of the deal) or rely on business performance after you’ve left.

Your business must be in order if you’re looking to get the largest payout possible. This means installing crucial value drivers.

While a third-party sale can potentially provide a larger payout, you’ve got to be realistic about what your business will be worth to an objective buyer. Many buyers tend to veer towards their own personal estimate of value or use an industry rule of thumb – this can leave your business with an incorrect estimate. Obtaining a valuation from a certified business valuation specialist can give you a more accurate picture of what your business is actually worth.

Striking the right deal often necessitates professional help, as business owners can struggle to find the right buyer and get the maximum value. It’s good to assemble your deal team early, keeping in mind: market research, deal marketing, auctioning, offer management, tax analysis expertise, and more.

Perks: Time

Most business owners look to exit their business within the next 10 years. Typically, it can take 5-10 years to plan building up and selling a company. Through a third-party sale, the right strategies can reduce the time to transfer ownership.

Drawback: Marketplace Perception

If you look to sell your business to a third-party, but ultimately end up pulling your business off the market without selling it, that can read as a red flag, regardless of why you did so. This often happens when a business owner fails to get a proper valuation and rushes the business out to market to try to leave as quickly as possible.

Are you and your business prepared? Do you understand the market? Have potential problems been cleaned up? These should all be answered “yes” well before you begin the sale process.

The experts at MarksNelson are here to help guide you as you look to exit your business. Whether that’s helping develop a plan for your future exit or valuing your business, we’re here for you every step of the way. Reach out to us today.