Internal Succession: What’s Fair?

Internal Succession: What’s Fair?

Typically, there are two “buyer pools” to consider when selling your company. An external buyer is the obvious selection if your only objective is to maximize value. However, if the non-financial aspects of your business such as legacy, employees or community take precedence over the maximum sale price, you may consider an internal sale to a family member or a group of key employees.

However, the risks associated with an internal sale can be complex to navigate, but given enough time, a successful plan can be achieved. To ensure a successful result for everyone involved there are many variables to consider before implementing an internal transition:

Key Considerations

  • How much do you need from the transaction?
  • How much is fair?
  • How much time is needed to develop and implement a strategy?
  • How will the sale be structured?
  • How will the transaction be financed?
  • What is the tax impact of the transaction?
  • Can the business/purchasing group afford to pay the sale price?
  • What impact does the transaction have on available cash flow to the business and the new owner(s)?
  • Is the purchaser or purchasing group equipped to run the business when you are gone?
  • Will you retain a portion of ownership?
  • Is there a shareholder’s agreement in place or does one need to be developed?
  •  Is a Board of Directors or Advisory Group necessary to oversee the company? What is your role on the board?
  • What are the non-financial risks of selling internally?

How We Help

The decision to transition ownership and/or management of your business may significantly impact lifestyle, family members, and employees. Most owners encounter these decisions only once in their lifetime.

We specialize in helping owners and founders of privately held companies build and implement business transition strategies. Since our founding, we have transitioned close to 1,000 private companies nationwide.