Financing the Sale of a Business
How the purchase of a business will be structured is something that must be dealt with early on in the selling process. The simple fact is that the financing of the sale of a business is too important to treat as an afterthought. The final structure of any sale will be the result of the negotiations between buyer and seller.
In order for the sale to be completed in a satisfactory manner, it is vital that the seller answers six key questions:
- What is your lowest “rock bottom” price? It is important for sellers to know what is the lowest price they are willing to accept before they begin negotiations. Far too often, sellers have not determined what price is their “lowest price” and this can literally cause negotiations to fall apart.
- What are the tax consequences of the sale? Sellers often don't think about the tax consequences of the sale. Taxes will never go away and will be part of the sale regardless of when you sell. The key is to speak with a CPA, which may not be your current CPA that understands the tax liability from a sale of a business. Ask your Business Broker for a recommendation of a Business Sale CPA often referred to as a Business Transfer Specialist.
- Interest rates are no small matter. It is important to determine what is an acceptable interest rate in the event of a seller-financed sale. Ask your Business Broker for the current market rates.
- Have unsecured creditors been paid off? Does the seller plan on paying for a portion of the closing costs?
- Will the buyer have to assume any long-term or secured debt?
- Will the business be able to service the debt and still give a return that is acceptable to a buyer? This is very important to understand! A buyer will not move forward unless he or she is able to cover the debt and generate a certain amount of cash flow.
Studies after studies have indicated that there is a direct relationship between more favorable terms and a higher sales price. In particular, one study revealed that offering favorable terms could increase the total selling price by as much as 30 percent!
Business Brokers are experts in what it takes to successfully buy and sell businesses, and this is exactly the kind of insight and information that they have at their disposal. Experienced Business Brokers are able to use their knowledge of everything from current market conditions and financing strategies to the knowledge of previous sales and a given geographic region to help facilitate successful deals.
Usually, selling a business is one of the most important things that a business owner does in his or her professional lifetime. Business Brokers understand this fact, and they understand the importance of making certain that the deal is structured correctly. The facts are that the way in which a sale is structured could mean the difference between success and failure.
Structuring a deal in such a way where it is the best possible deal for both the buyer and seller, helps to ensure that a deal is successfully concluded. Working with a Certified Business Broker is one of the best way to ensure that a business will be sold.