Step Four: Sale to a Third Party for Top Dollar
Once an owner has fixed his or her exit goals and objectives, determined a market value for the company, and created
any needed additional value, the business is finally ready to be sold for top dollar. This is where the rubber
meets the road. The best tactic for middle market businesses to reach the checkered flag first is to orchestrate
a controlled auction. In a controlled auction, your company is introduced to a pre-selected list of qualified buyers.
The buyers, as a condition of participating in the auction, agree to comply with the bidding procedures and timing
requirements prescribed by the investment banker conducting the auction. Multiple buyers, bidding for your company
at the same time, each having identical information and each being financially qualified to acquire your company,
will compete against each other for the opportunity to purchase your company.
An alternative to a controlled auction is the Negotiated Sale. In this method, an owner has identified a single
buyer (or one has identified him or her) and has decided to transfer the company to that buyer.
If you are ready to proceed with a sale to a third party, consider the use of an Investment Banker as well as
other team members. For a more complete description of the roles that Investment Bankers and Transaction Attorneys
play in the sale process, click on the Investment Banker and Transaction Attorney links below.
Smaller companies also require an experienced set of transaction advisors. If your business is worth less
than $5 million, you will likely substitute the Investment Banker for a Business Broker.
When you sell your business, your silent partner, the IRS, will take its share of the purchase price. The size of
its share, however, depends on both tax structure and tax planning. Without proper planning, the tax bite can be twice
as large as with planning and the total tax bill may exceed 50 percent of the sale price.
Resources
Library
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The Exit Planner - "Getting Top Dollar When You Sell Your Business:
Parts I and II."
Part I: This issue describes the first two phases of the Controlled Auction process: Pre-Sale
Planning and Pricing and Marketing the Business and Finding a Buyer. In a Controlled Auction, multiple
buyers, armed with the same information and all financially qualified, bid simultaneously for the chance
to purchase a company. At each step, John Brown highlights what the business owner can do to make the
process work to his or her advantage.
Part II: This issue completes the description of the four-phase Controlled Auction process. Phase III,
"Negotiating the Sale" includes the letter of intent, final due diligence financial contingencies,
the definitive purchase agreement, indemnification, representations and warranties and techniques to maintain
confidentiality and momentum. Phase IV includes closing the deal and issues that survive closing.
The C vs. S Corporation White Paper - This informative white paper explains why the best form of
business entity (C or S) for tax purposes during a business's start up and operational years may not be
the best when it comes time to sell the business. Descriptive case studies and clear tables help show
owners why entity choice is so important.
"Cash Out Move On: Get Top Dollar — And More — Selling Your Business." This book
provides an extensive discussion of this part of the Exit Planning Process.
The Exit Planning Review™ eNewsletter
You can request these materials by contacting BEI.
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Team
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Exit Planning Professional
Investment Banker
Transaction Attorney
Certified Public Accountant
Business/Estate Planning Attorney
Find An Exit Planning Professional In Your Area
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The Bottom Line
Income Tax Planning
It is imperative that you work with your advisors to design an exit strategy that minimizes and avoids,
to the extent legally permissible, the payment of income taxes upon the transfer of your business. Timely tax
planning saves business owners millions of dollars. Develop your Advisory Team early in the Exit Planning Process
and give your team the time it needs to design and implement tax saving strategies.
Transfer of Ownership Interest
The decision whether to sell your business to an outside third party or to transfer it internally to one or more
employees is often deferred until you have completed the first three steps (establishing exit objectives, valuation,
promoting value). A major goal of the Exit Planning Process is, in fact, to determine the best or most appropriate
buyer for your company. No matter what type of buyer you choose, the Exit Planning Process positions you to implement
your decision. Consider choosing an Investment Banker or Business Broker appropriate to your exit objectives, the
size of your company and your choice of buyer.
Go to Step Five
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 eNewsletters
Books
Seminars
| If you and your business are ready to sell, there are opportunities in selling your business
now and significant dangers if you delay. |
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