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Understanding Your Options for Selling Your Business
Inside vs Outside Transactions

Thinking about selling your business?

It’s important to understand your options.

You can choose between selling to an inside party, such as family members or employees, or to an outside third party.

Each path has distinct processes, advantages, and challenges.

Here’s an overview of what each option entails, along with some insights to help you decide which is best for you.

Inside Transactions: Keeping it Close

Advantages:

  • Continuity and Legacy: Selling to family members or employees helps maintain continuity and preserves the legacy of the business.
  • Employee Morale: Employees may feel more secure and valued, leading to better morale and retention when the business ownership stays within the company or family.
  • Institutional Knowledge: Inside buyers already understand the business’s operations, reducing the learning curve and minimizing disruptions.

Challenges:

  • Financial Constraints: Financing an internal sale can be difficult. The new owners, whether family members or employees, need to secure funding, which may present a challenge. You may end up financing it for them.
  • Family Dynamics: Transferring ownership within the family can be emotionally complex, often leading to conflicts, feelings of favoritism, or accusations of nepotism.
  • Complexity of Transactions: Internal transactions, such as Employee Stock Ownership Plans (ESOPs), can be complex and expensive to implement.

And maybe the biggest challenge of all: sometimes the people you think will want to buy in and take over don’t want to!

This happened in our business. No one wants to buy a soul crushing job, no matter what it pays! This is one of the reasons you want to make sure the business runs itself.

Outside Transactions: Bringing in New Perspectives

Advantages:

  • New Resources: External buyers often bring additional resources and capital, making it easier to grow or expand.
  • Faster Exit: Owners can often exit the business more quickly through an external sale.
  • Potential for Higher Returns: Third-party buyers might offer more money, providing immediate liquidity.

Challenges:

  • Loss of Control: Selling to an external party means giving up control, which can be difficult for owners who are deeply invested in the business’s future direction.
  • Cultural Changes: External buyers may change the company culture, which can affect employee morale and operational continuity.
  • Stressful Due Diligence: External sales often involve rigorous due diligence processes, which can be time-consuming and stressful.

Key Considerations for Both Options

  • Personal Goals: Determine your personal goals before deciding on a sale method. Are you looking for a clean break, or do you want to stay involved?
  • Financial Needs: Assess your financial needs and the business’s financial position. How much do you really need from your exit? Internal transactions might be less lucrative but offer other benefits, like preserving the business’s legacy.
  • Market Conditions: Evaluate current market conditions to decide if an external sale will yield a good price or if it’s better to opt for an internal transition.
  • Readiness of Successors: Do you have potential internal successors that are both willing and capable of taking over the business? There’s no point in selling (or even worse, giving) your business to family members if that’s not what they want.
  • Tax and Legal Implications: Different transaction types come with varied tax implications. Get professional advice so that you can structure your deal to optimize tax benefits.
  • Emotional Impact: Consider the emotional aspects of selling your business. An external sale might offer closure, while an internal sale can keep your business legacy alive and within familiar hands. Either way, you want to be sure you are prepared – both personally and financially – for your new reality post-sale.

The Most Important Consideration: What Do You Want?

At the end of the day, the success of your business sale hinges on aligning the transaction with your personal and financial goals.

Spend time understanding what you truly want from the sale—whether it’s maintaining your legacy, achieving a quick exit, or maximizing financial returns.

Once you have a clear vision, you can choose the best path and work with advisors to navigate the logistics and mechanics of the sale.

Remember, the terms of the deal often mean more than the money. (Ask me how I know this!)

Design your exit strategy to fulfill the outcomes that matter most to you.

If you’d like to talk through your options, book a consultation here: Book a call.

Want to sell your business or get ready to sell? Start here.

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