The Pros of Third-Party Sales

After business owners have set their retirement goals and have learned what they need to do to build and protect business value, they make a big decision: Which Exit Path should I take? At the outset of Exit Planning, many business owners believe that they’d like to sell their businesses to third parties. In this post, we’ll examine two of the most common reasons business owners think about pursuing third-party sales as their chosen Exit Path.

Third-Party Sales: Perceived Pros

Think about some of the most successful business sales and mergers. Whether it’s Facebook buying Instagram for $1 billion or Google offering to buy Snapchat for $30 billion, a common presumption that business owners make when considering a third-party sale is that they can make the most money by selling to a third party. Typically, they’re correct: Of all Exit Paths, third-party sales tend to provide business owners with the most money, the most quickly.

The First Pro: Money

For some business owners, third-party sales are most appealing because of the potential payoff. Unlike family members or key employees, third parties usually have the funds to pay for ownership in full. This can mean that business owners don’t have to submit to promissory notes or rely entirely on how the business performs after they exit for their financial security.

There are a few caveats, however. First, to receive a maximum payout, owners must first have their businesses in order. This means beginning to install crucial Value Drivers that all buyers look for in a business. This often requires the help of several different advisors, and owners often find that working with an Exit Planning Advisor to network with the advisors they need facilitates the process.

Second, most business owners understand that they probably won’t receive billion-dollar offers for their businesses. But often, business owners will fall into the trap of believing that their businesses are worth more than an objective buyer will pay. There are two things that owners should do to avoid this temptation:

Get a professional appraisal. Many owners want to use an industry rule of thumb or their own personal estimate of value when pursuing a third-party sale. This can hurt business owners because an incorrect estimate of value can make owners think they don’t have to continue building business value. Business owners can obtain an accurate, professional valuation from a valuation professional or by consulting with an Exit Planning Advisor. Exit Planning Advisors work closely with business valuation professionals and can help owners find an appropriate professional to properly value their businesses.

Get help finding qualified buyers. Even when owners have businesses that have maximum value, they can struggle to find the right buyer for their businesses. Buyers are rarely charitable with what they’re willing to pay for business ownership, and negotiating the right deal often requires professional help. Business owners can build a proper Deal Team by reaching out to an Exit Planning Advisor, because Exit Planning Advisors have networks of professionals who can guide owners through the sale process, from finding the best buyers to finalizing crucial sale details.

Though money is a common reason owners look to sell to third parties, it’s far from the only reason. Another popular reason owners like third-party sales is how much time they can save.

The Second Pro: Time

A typical Exit Plan takes 5–10 years to create and implement if a business owner is starting from scratch. However, with the right strategies and Advisor Team, owners can reduce the time it takes to transfer ownership by pursuing a third-party sale.

Third-party sales benefit owners who want to exit their businesses as quickly as possible while still obtaining financial independence. Qualified third parties can usually provide business owners with the sale price more quickly than any other type of buyer. Sales to third parties also give owners the freedom to spend their time as they choose after they exit. Unlike sales to management or children, a properly executed third-party sale lets owners immediately begin their post-exit lives, since owners get all, if not most, of the money they’re owed up front.

Again, for owners to complete a third-party sale that allows them to exit sooner, they must know the amount of money they need for financial independence, have a professional appraisal of value, and have contact with qualified buyers. Without proper preparation led by an Exit Planning Advisor, the potential for maximum payout over minimal time can be permanently damaged.

Let our team of highly trained, experienced professionals work with you to successfully exit your Company. Contact us at 888-487-8258 today for a no-cost consultation.