Internal vs External Succession:
The Ultimate Comparison
Legacy or Liquidity?
Your Choice.
Navigating the emotional and strategic complexity of exiting your business in California's unique regulatory landscape. Do you choose the "Decadal Grooming" of internal succession or the "Strategic Sprint" of an external sale?
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License & CredentialS
CA BRE# 01861204
M&AMI
Master Intermediary
LCBB
Lifetime Broker
CM&AP
M&A Professional
CABB
CA Assoc. Bus. Brokers
M&A Source
Global Association
Comparison Matrix: Internal vs. External Succession
Most owners struggle to balance the desire for maximum payout with the need to protect their employees. This matrix simplifies the trade-offs.
| Comparison Vector | Internal Succession | External Sale (M&A) |
|---|---|---|
| Valuation & Payout | Discounted. Typically relies on seller notes (IOUs) paid over years from future profits. | Premium. Immediate liquidity at market multiples. Often 100% cash or cash + equity rollover. |
| Continuity & Culture | Preserved. Staff and mission remain intact. High stability, low "cultural clash" risk. | Disrupted. High risk of cultural dilution. New ownership often implements operational synergies. |
| California Tax Risk | Mitigated. Options like ESOPs can defer capital gains. Gradual transfer manages tax brackets. | High Exposure. Immediate 13.3% CA State Tax + Federal. Prop 19 reassessment risk on real estate. |
| The Timeline | Decadal Grooming (5-10 Yrs). Requires training successors to think like owners. | Strategic Sprint (6-12 Mos). Intense due diligence, faster exit, clean break. |
The California Factor
Operating in California adds a layer of complexity that generic exit planning ignores. Ignoring these three pillars can erode up to 40% of your deal value.
Prop 19 & Real Estate
Transferring business real estate to children can trigger a property tax reassessment to the current market value, crushing cash flow.
Ordinary Income vs. Capital Gains
California does not recognize a lower capital gains tax rate. You face the full 13.3% state tax on top of federal rates.
The WARN Act
Strict 60-day notice requirements for mass layoffs or plant closures are common in strategic acquisitions.
Risk Mitigation Strategy
For Internal Succession, we utilize the "Decadal Grooming" model to slowly transfer ownership, leveraging valuation discounts to lower tax burdens.
For External Succession, we utilize "Pre-Sale Optimization" to normalize earnings and find buyers who value synergies over mere asset value to offset the tax hit.
Why California Founders Choose External Succession
External succession is the culmination of your life's work. A buyer screens for traps; a sell-side advocate orchestrates competition to ensure you never leave money on the table.
Our Performance
92%
Success Rate on Market Exits
Value Maximization
Rogerson Business Services in the lower middle market creates a "Broad Auction" environment to drive competitive tension, pushing multiples beyond the standard sector average.
Narrative Control
By managing information disclosure, we reduce the "uncertainty discount" buyers apply to private assets.
Deal Fatigue Mitigation
Our advisors act as a buffer, managing the exhaustive diligence checklist so you can focus on running your business.
Structure M&A Deals
Expertise in working capital pegs, earnouts, and rollover equity to ensure the headline price matches the cash at close.
Common Questions from CA Owners
Is the 'Silver Tsunami' real in California?
Yes. Nearly 48% of Boomer-owned businesses in CA are projected to exit by 2028. This creates a buyer's market, making preparation crucial to stand out.
Does an internal sale avoid the 13.3% tax?
Not automatically. However, internal paths like ESOPs (Employee Stock Ownership Plans) offer specific tax deferral mechanisms that asset sales to 3rd parties do not.
How does the California WARN Act affect an external sale?
If you sell to a buyer who plans layoffs (50+ employees) or a plant closure, you must provide 60 days' notice. Failure to do so results in significant penalties.
Why is internal succession called 'The Marathon'?
Because it requires 5-10 years of 'grooming.' You aren't just transferring stock; you are transferring institutional knowledge and leadership capability.
Can I choose a non-compete to protect the business after sale?
It is difficult in California. Section 16600 strongly favors employee mobility. However, there are exceptions for the 'sale of a business' (goodwill) that must be drafted carefully by counsel.
Ready to Structure Your Next
Multi-Million Dollar Deal?
Strategically updated for 2026 M&A and Tax Guidelines.
California Specific Warning
DRE Licensing Enforcement
To value and sell a business in CA, the firm must hold a California Department of Real Estate license. Unlicensed out-of-state "free" tools are illegal in CA.
Board Compliance (CSLB/BAR/ABC)
Free estimates ignore California's complex licensing clearances. Buying a construction or auto repair shop without CSLB/BAR clearance can trigger immediate legal failure.
Negotiate from Strength, Not Guesswork.
"If your business is in California, an out-of-state free business valuation is the fastest way to lose millions in structural errors. We live and breathe CA M&A."
Specialization Matters
Rogerson Business Services handles the Lower Middle Market (Gross Revenue $2M–$100M) with a track record of closing complex transactions across multiple CA sectors.
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