Posts Tagged ‘buying a business’

Business owners are used to being in charge and having things their own way. In fact, that may have been the deciding factor in becoming a business owner in the first place. And that may be a problem when it comes time to sell. The potential buyer probably has that same strong desire.

Without flexibility on the seller’s part, any offer from a prospective buyer is likely to be substantially discounted. There are three flexibility areas that will result in a higher price: provide detailed information; provide owner financing; and provide owner training and transition support.

Provide Detailed Information

It is legitimate to be concerned about giving out too much competitive information to people who will not ultimately buy your business. Holding back information that prospective buyers need in order to decide how much the business is worth to them forces the buyers to assume the worst.

Prospective buyers will discount the value they needed in order to understand how much the business is worth. Of course, there must be a signed non-disclosure agreement before any confidential information is released.

Owner Financing

Financing is a struggle in most business transactions. Owners would like 100% of the cash at closing. Buyers would like 100% seller financing.

Being willing to provide some seller financing is much more than helping buyers with the down payment. It is a huge statement of a seller’s confidence in the business, the ability of the buyer to succeed, and the accuracy and completeness of what the seller has told the buyer.

A direct correlation exists between the amount the seller is willing to finance and the price of the business. All cash deals can be discounted by 20% verses deals where the seller is doing 10% to 20% financing.

Most banks and the SBA now normally require some owner financing in order to approve the loan to the buyer.

Sellers should be willing to finance at least 20% to 50% of the price of the business. By doing this, the seller is actually likely to get more cash at closing and a total higher price than if the seller demanded all cash up front.

Owner Training/Transition

When the sellers walk out the door, the buyers fear that much of the business walks out with them.

Although it may be appealing to take the cash and run, there will be more cash to spend if sellers are willing to do their part to ensure the success of new owners.

• Offer to train the buyer on being the owner of the business. This usually lasts from two weeks to two months.
• Offer to make introductions to employees, customers and suppliers, giving each confidence that at least in the short-term, it will be business as usual.
• Offer to be available to answer questions that may arise for a longer period of time, perhaps as long as a year.

Each of these actions will reduce the risk to buyers and increase the price they will be willing to pay for the businesses. In addition, these actions will enhance the buyers comfort level.