NovarsGroup Business Brokers

----- quick selling tips summary -----

analyze financing options

how the buyers may pay

There are a number of ways a prospective buyer uses financing to acquire your business.

From the sellers point of view, you would like to receive cash-in-hand at the business price and walk away after a 4-6 week transition period.

From the buyers point of view, they are looking to protect their investment and mitigate the risk.

So most financing arrangements becomes a negotiation process that meets in the middle that satisfies the seller and buyer objectives. These negotiation points include the following:

1. An upfront down payment:
   the buyer needs to put down a percentage of the negotiated sales price as a sign of "invested interest". This forces the buyer to "make the acquisition happen".
   
   The percentage down usually starts and 20% or more. Again every buy negotiation is different. But we recommend at least 25% or more as a down payment.
   
   
2. Earn-Out Provisions:
   many buyers will demand some earn-out provision for the remaining due amount of negotiated sales price. This means the buyer is looking for the seller to be engaged in the transition for an extended period of time.
   
   Sellers don't like these provisions, but it may be required to close the deal. So sellers need to negotiate earn-outs that includes a salary and a bonus earn-out payment if the numbers exceed forecasts.
   
   
3. Seller Financing:
   some buyers - particularly single buyers - will likely require some seller financing in order to close the deal. Some lenders may also require it. This involves the seller to finance some or all of the remaining amount required for the acqusition.
   
   Sellers need to negotiate the seller financing terms that has a rate, repayment period, and penalty clauses that allow the seller to take back the business in the event the buyer fails (or appears to fail) to make payment. These negotiations can be complicated and require legal counsel to finalize the financing terms.
   
   
4. Lender Financing:
   lenders will extend capital to acquire a business. Most of these transactions are SBA loans for individual buyers; credit lines for established businesses. The buyer (and the business projections) will need to prove their credit worthiness.
   
   Almost all SBA deals require a buyer's down payment. Some SBAs deals may also require seller financing. For example, lenders may lend at 40% - the buyer puts down 25% - and the seller finances at 35%. The seller needs to be careful about these shared deals. The lender has first position in the event of default. So the seller needs to protect their position.
   
   

Again, a number of these financing options can be negotiated to make it win-win strategy. Our role is to protect your interest and ensure you get the maximum value upon the successful closing of your business.

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