Why Financing Matters for Selling Your Business

Many sellers figure that the financing of a business purchase is strictly the buyer's problem, but to have the best chance of the greatest value sale, it is definitely something that needs to be considered by the seller and the business broker as well.

While it is true that you want to find a buyer with a strong cash position and one who is financially sound, it is not true that you will get the best deal from an all cash buyer.

First, that all cash buyer may be using a loan, such as an SBA loan to make up a big portion of their payment, and there are limits to how much they can borrow from those sources.

Second, and all cash buyer is going to want the biggest discount on the price, and amy want other concessions to compensate for the fact that the seller is getting their entire payment upfront.

Third, from a tax perspective, taking the entire value of the business all at once at the time of sale is likely to result in the biggest tax liability with the largest portion of the proceeds taxed at the highest rate.

Fourth, it is harder to find a buyer and there are fewer buyers to consider offers from in an all cash deal, simply because smart buyers are more suspicious of a seller who is unwilling to carry a note or otherwise finance part of the deal because they assume it means they have no faith in the ongoing viability of the business.

Therefore, for all of these reasons, the smart seller will consider the various options available for financing a portion of the business sale and will work with the broker and the buyer to come up with a solution that works for everyone and is most likely to provide a greater total value for the seller than simply cashing out all at once.

The advantages of doing this are getting a better price, keeping a greater percentage of the total sale, having more buyers to choose from and being able to find and close with a buyer much more quickly.

The way a seller can help is by providing the required documentation for a loan from an outside lender as needed in a timely fashion and also being open to considering carrying a portion of the sale price as a note with reasonable terms. By simply doing these two things, the smart seller greatly increases the value and saleability of their business.

If you are interested in having us represent us in your business sale, give us a call and let's see if we can work together to make it happen.