Should You Sell Your Company to an Outside Third Party? Part 2
In our blog post on Tuesday, we suggested that instead of falling subject to the uncertainties of selling to a third party, you could instead control of your exit by creating a strategy to sell to insiders such as family members or employees. That plan could allow you to choose your buyer; name your sale price and control ownership until you are fully paid, and shift the burden of the company’s future performance from you to the buyers.
When selling to family members that are employees there are three important areas to consider:
- Insider Sales Require Time to Plan
- The Objection to Insider Transfers
- Insider Sales Yield Cash
Insider Sales Require Time to Plan
While sales to insiders require work on the owner’s part; sales to third parties can require just as much work and be just as time consuming.
Once owners understand third party sales, they usually agree that transferring to insiders is a far better course than liquidation. This is particularly true for owners whose companies are too small or in an unfavorable industry to attract qualified third party buyers.
Objection to Insider Transfers
The most common objection to selling to a family member or employees is that they do not have the money to begin buying your company. That’s true—today. But they can and will if your company has:
- A good management team that desires ownership
- Good cash flow; and
- Ample time for you to design a tax-sensitive transfer plan and to implement that plan prior to exiting.
Insider Sales Yield Cash
If you have time to work with your advisors to design and to implement an exit plan, you can often get as much cash with no more risk in an insider transfer as they can from a third party sale. By using time wisely, there’s no reason that the insider transfer cannot yield as much cash as the third party sale.
Obviously there are many other considerations in third party versus inside sales based on each individual situation. Be sure to get consult your advisors for the best exit plan for you and your business.