Internal vs. External Sale: Choosing the Right Path to Exit Your Business

Every business owner will eventually exit their business. The real question is how that exit will happen.

In this episode, we examine the two primary paths for selling a business: an internal sale to a family member, management team, partner, or employees, and an external sale to a strategic buyer, private equity group, financial buyer, or outside individual.

We explore the major differences between the two approaches—including business value, purchase price, cash at closing, financing, timing, confidentiality, risk, and legacy. Internal sales may provide greater continuity and preserve the culture of the business, but they can involve lower purchase prices and payments spread over time. External sales may provide a higher price and more cash at closing, but they also involve due diligence, outside buyers, and potentially significant changes to the business.

One of the most important issues discussed is business value. Before deciding how to exit, an owner needs to understand what the business is truly worth and the difference between what an internal buyer may be able to pay and what an external buyer might offer.

The episode also provides important questions every owner should consider:

• Do you want the business to remain in the family or with the existing management team?
• Do you need maximum cash at closing?
• Is there a qualified internal buyer who can realistically finance the purchase?
• How much risk are you willing to accept by financing the sale?
• Is maximizing price more important than preserving your legacy?
• How much time do you have to prepare for your exit?

The key takeaway is simple: don’t wait until a buyer appears to decide how you want to leave your business.

Through the GWT Planning System®—Growth, Wealth, and Transition—business owners can work toward building transferable value and preparing for either an internal or external sale. The objective is to be in a position where you are negotiating from strength rather than necessity.

Your exit strategy should be a choice—not something that happens to you.
definitieve guide to value drivers

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Tom's Calendar

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The One-Way Buy-Sell Agreement

Host: Thomas J. Perrone, CLU, CIC

In this episode of Building and Protecting Your Business Worth, Thomas J. Perrone discusses the one-way buy-sell agreement and how it can help business owners address the financial and ownership consequences of an unexpected death.

The discussion focuses on the importance of having a clear plan for transferring a business interest, providing liquidity to a deceased owner’s family, protecting the continuing business, and properly funding the agreement.

A buy-sell agreement is only part of the solution. Business owners also need to consider how the obligation will be funded and whether the funding remains adequate as the value of the business changes.

The key message is simple: Don’t wait for a death or other unexpected event to determine what happens to your business. Plan for the transition before the crisis occurs.

Building and Protecting Your Business Worth with Thomas J. Perrone, CLU, CIC provides practical strategies for helping business owners build, protect and ultimately transition the value they have created.

tperrone@necgginc.com
www.bpbpgrp.com/tom

Comprehensive Business Planning Guide

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Most business owners have an Action Plan—they know how to generate sales, serve customers, manage employees, and keep cash flow moving. But many have never developed what Thomas J. Perrone calls a “Plan for Details.”

In this episode, Thomas explains why the details behind the day-to-day operation of a business can have a tremendous impact on its ultimate value and the owner’s financial future.

The Plan for Details focuses on four critical areas:

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  Growth — increasing the value and strength of the business.

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  Protection — preparing for the unexpected, including the death or disability of an owner or key employee.

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  Equity Creation and Distribution — turning business success into personal wealth outside the company.

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  Exit and Transition — preparing for the eventual day when the owner is no longer running the business.

Thomas also discusses one of the biggest challenges facing business owners: “You don’t know what you don’t know.” Missed opportunities involving key employees, company culture, systems, cash flow, taxes, business value, and succession can become expensive when they are discovered too late.

A major theme of the episode is that a buyer wants to purchase a business—not purchase a job. The less dependent a company is on its owner, the more attractive it can become to a future buyer.

Thomas introduces the GWT Business Planning System and its 30-Day Business Planning Pathway, designed to help owners identify the areas that deserve attention without becoming overwhelmed by a complicated planning process.

The ultimate objective isn’t simply to build a bigger business. It is to build value, protect that value, create wealth outside the business, and give the owner the freedom to eventually leave the business on their own terms.

Key takeaway: Your Action Plan gets the business moving. Your Plan for Details determines what happens after it starts moving.

Lets Discuss: Toms Calendar

Free Download; The Planning GWT PLANNING SYSTEM® Guide

Article: Where you are- Where you Could Be

Tperrone@necgginc.com