Follow Dallas Linkedin
Email Dallas Email
Financial
Jun 15, 2018

Unforeseen Challenges to Third-Party Sales

Sponsored Content provided by Dallas Romanowski - Managing Partner, Cornerstone Business Advisors

For many business owners, a sale to a third party is their assumed exit path.

Some business owners even start their businesses with the goal of finding a larger, more deeply pocketed buyer, selling the business, and retiring early. The potential to sell the business for cash draws business owners to third-party sales.

If you are considering a third-party sale, do you know the full scale of the planning you’ll need to do to get ready? Those who make plans improve their chances for a successful sale.

While it’s true that many business owners initially intend to pursue a third-party sale as their exit path, it’s also true that many of those same owners choose a different path in the end. There are four challenges you may face in pursuing a third-party sale that may cause to you change your mind, and some of them are unexpected.


Challenge 1: Threats to Financial Security

Third-party sales are a two-sided coin. While they may attract the highest sale price, they also can require you to give up control. If you do not receive the entire purchase price in cash at closing, you risk relying on the company’s new owners to perform well enough to support the earn-out or pay off a promissory note.

If the company struggles after the sale, and you are reliant on the continued performance of the business you no longer own for post-exit security, you may find that you have to go back to work.


Challenge 2: Seller’s Remorse

Seller’s remorse occurs when business owners sell their businesses and find that they don’t have anything they like to do outside of running the business. You may assume that you will figure out what to do after you exit, only to panic as the sale date approaches.

Pulling out of a sale can have a ripple effect, since qualified buyers might shy away from businesses that go on the market then come off the market without selling. Additionally, owners who don’t know what to do with their lives without the business can have an unfulfilling post-exit life if they sell the business without a post-exit plan.


Challenge 3: Tax Consequences

Will you be one of the unfortunate owners who finds yourself owing a significant percentage of your sale price to the government in taxes? Without a pre-sale analysis of the business and personal tax consequences of a sale, you may go too far down the path with an attractive buyer before you realize you can’t afford to sell the business for the price they offer.


Challenge 4: Culture Shock

Buyers commonly want to make changes to their acquisition post-closing. After all, buyers rarely buy businesses unless they think they can make changes to improve them.

You may regret selling to a buyer who radically changes your company, which can dampen your post-exit satisfaction. Perhaps more harmful are owners who decide that they cannot stomach a radical change to their businesses’ culture and take them off the market, thereby causing the value of their businesses to drop dramatically (i.e., tainting the marketplace).

There are many assumptions for business owners to make if they decide to pursue a third-party sale. Those assumptions can have negative effects for owners and their businesses if not properly addressed. If you’d like to discuss the plausibility and challenges of a third-party sale for your business, please contact us today.

© Copyright 2018 Business Enterprise Institute, Inc. All Rights Reserved

As a member of the Business Enterprise Institute (BEI), Cornerstone Business Advisors is an authorized distributor of BEI’s content and Exit Planning Tools.

The Cornerstone team includes former C-Level executives, successful entrepreneurs and advisers who offer unmatched experience in delivering advanced, custom-tailored, results-oriented solutions for business leaders. We developed the Performance Culture System™ to help clients implement best practices and drive high performance throughout their organization. For more information, visit www.launchgrowexit.com, call (910) 681-1420 or email [email protected].

Other Posts from Dallas Romanowski

Bizjournalblockad
Ico insights

INSIGHTS

SPONSORS' CONTENT
Dallas headshot 300x300

Why Make Your Business More Valuable Without You?

Dallas Romanowski - Cornerstone Business Advisors
Mc2 56882

Building Insights: 2019 Homebuilding Industry Outlook

Scott Byers - Majestic Kitchen & Bath Creations
Deedee gasch

How Businesses Can Maximize Their Attorney-Client Relationships

Deedee Gasch - Cranfill Sumner & Hartzog LLP

Trending News

Coastal Carolina Curling Club To Slide Into Own Facility

Johanna Cano - Apr 22, 2019

Brunswick County March Residential Sales Warm With Weather

Jenny Callison - Apr 22, 2019

Parr Earns Fellowship From Professional Organlzation

Jenny Callison - Apr 22, 2019

Mitchell Joins Team At North State Bank Mortgage

Jenny Callison - Apr 22, 2019

Wilmington Search Firm Makes Second Appearance On Forbes List

Jenny Callison - Apr 22, 2019

In The Current Issue

Hamilton Looks To Redefine The Entrepreneur

Entrepreneurship isn't limited to a select few, says Brian Hamilton, co-founder and CEO of Sageworks, who has been spreading that message i...


Harvesting Seafood Innovation

Can Wilmington become the home of seafood innovation in the United States? A two-day workshop April 23-24 at the University of North Carolin...


Navigating New Traffic Solutions

As the area continues to attract new residents and businesses, as well as bumper crops of tourists, the challenge of improving traffic flow...

Book On Business

The 2019 WilmingtonBiz: Book on Business is an annual publication showcasing the Wilmington region as a center of business.

Order Your Copy Today!


Galleries

Videos

2019 WilmingtonBiz Expo Keynote Lunch - CEO, nCino, Pierre Naude`
Transporting the Future - Power Breakfast 3.12.2019
Health Care Heroes 2018