What is third party sales and why third parties fail?
At the outset of Exit Planning, many business owners believe that they’d like to sell their businesses to third parties. What is it about third-party sales that draws business owners to them, and what is the most common problem that prevents them from successfully pursuing a third-party sale?
In this post, we’ll examine the most common reason third-party sales fail for business owners.
Tainting the Marketplace
In terms of third-party sales, the biggest con is that owners can taint the marketplace. Tainting the marketplace means putting the business on the market for sale, then pulling the business off the market without selling it. When buyers see that an owner failed to sell the business, it serves as a permanent black mark on that business, regardless of why the owner takes the business off the market without selling. Tainting the marketplace is almost always a result of business owners not getting what they thought they should get. Let me explain.
Every business owner approaches the sale of their business with certain expectations. Some expectations are based upon the owners’ hopes and dreams (Buyer will continue the “legacy” with little change), while others are built around hard facts (I need $5 Million to sustain my standard of living).
It’s common for owners to first begin to taint the marketplace when they decide that they are ready to leave the business. Then, using a guess or rule-of-thumb valuation, they expect to get a certain amount of money in a sale. When they cannot find a buyer who will give them that amount—usually because the business simply isn’t worth the amount the owner asks—they pull the business off the market, only to find that even years after their first false start, businesses are less likely to offer the amount of money they’re looking for.
A proven way for business owners to avoid tainting the marketplace is to work with an Exit Planning Advisor. Exit Planning Advisors have the tools, networks, and resources to help owners properly value their businesses, find buyers who can help them achieve both their financial and values-based goals, and position them to exit on their terms.