For many owners, a sale to a third party is either their favorite or second favorite Exit Path. In fact, according to The BEI 2016 Business Owner Survey Report , 59% of business owners were interested in pursuing a sale to an unrelated third-party. While this number is staggering compared to the other Exit Paths business owners initially pursue, it makes sense when considering the obvious advantages of a third-party sale.
The advantages we’ll discuss exist in the context of the three fundamental goals of all BEI Exit Plan designs:
Advantages of Third-Party Sales
In our prior discussions about the advantages of a sale to management and the challenges of a sale to management , we’ve examined six aspects affected by a business owner’s choice of Exit Path. Those same six aspects will guide today’s discussion, and help business owners and their advisors examine some of the general advantages inherent in a third-party sale.
Advantage 1: Financial Security
There are three reasons why a third-party sale is advantageous to business owners who want financial security from their exits.
Advantage 2: The Time Factor
Compared to other Exit Paths, a sale to a third party can be completed relatively quickly, usually within a year.
Advantage 3: The Time Margin
Recall that the time margin is the period in which business owners develop interests outside the business while still receiving income from it. You might infer that the relative quickness of a third-party sale prevents owners from capitalizing on the time margin, but that’s not always the case. With proper pre-sale planning, business owners often find that their time margins increase.
Advantage 4: Tax Consequences
Typically, a business owner’s Advisor Team can structure a sale so that the proceeds from the sale-of-ownership interest are subject only to long-term capital gains taxes, which can save business owners substantial amounts in tax dollars.
Advantage 5: Values-Based Goals
There are two advantages to a third-party sale in terms of a business owner’s values-based goals.
Advantage 6: Successor
With a properly planned third-party sale, it can be possible to limit the possible new owners to a select few who share the seller’s culture and values.