Selling Your Business to a Third Party: Three Ways to Optimize Succession

Equal parts exhilarating and overwhelming, the process of selling your business is made no less complicated by the many exit strategies available. But even after weighing all your options, including selling to a family member or your employees, you may still be in search of the perfect way to establish succession. For those ready to jump into their next chapter, a third-party sale is a smart and flexible option that allows you to make a clean break from your business.
 
Before making a move, consider three key steps that will bring you closer to finding a buyer for your life’s work.
 
Learn the value of your business 
After choosing a third-party sale, the first step forward is appraising how much your business is worth, or its valuation. After all the hard work you’ve put into your business, you want to ensure you get an objective estimation of its value from a certified appraiser. Though you will have to pay an appraiser to perform this complex analysis, it is well worth the investment in order to guarantee an accurate, and possibly larger, payout for the sale.
 
Find the right people for your sales team
Finding the right people to guide you through the complex process of a third-party sale can make the difference between a successful experience and one that leaves you with regrets. Your sales team should include a financial advisor, accountant, and business attorney. 
 
Your financial advisor will gather financial recommendations and data, plan your post-sale investments, and introduce you to the rest of your team: an accountant and a business attorney who specialize specifically in your type of sale. A business broker may get involved in the process—helping you find a qualified buyer among your customers, suppliers, and competitors—but you do not need one for a successful sale.
 
Determine the best type of sale for you
There are two basic types of sales: stock sales and asset sales. Though both options involve negotiations between buyers and sellers, they differ in a few key areas. 
 
In a stock sale, a third party purchases your company by buying the company’s stock. This tends to be the cleaner option for sellers, though they will owe taxes on any realized capital gain. In an asset sale, a third party purchases your company’s assets as a stand-in for buying the company itself. Certain seller tax disadvantages make an asset sale the better option for buyers.
 
Though you may need more time and patience, a third-party sale can be less risky than other options if you receive an all-cash offer.
 
If interested in a third-party sale, it is best to begin the around eighteen-month planning process now, even if you aren’t ready to sell. Take control of the terms of your sale by sitting down with First American Bank’s financial advisors. Our experts can talk through your options, plan your exit strategy, and help you prepare for your next exciting venture.