Should I Offer Seller Financing? Thoughts For Business Owners
Are you considering selling your business? In a perfect world every buyer would come to the table with an all-cash full price offer, but in reality we know that’s not going to be the case.
Many small business buyers will qualify for loans like those from the SBA (Small Business Administration), but a far more common practice is seller financing.
Seller financing means a buyer pays a substantial down payment (typically more than half of the purchase price) and then you finance the rest for a specified interest rate and amount of time. If the buyer falters for some reason you get to keep your money and you get your business back.
Seller financing happens in a lot of small business transactions because it can be a very successful way to get a business deal done. From a buyer’s perspective it means the current owner is willing to keep some skin in the game – they know the business is in good shape and has a future (so they can get paid). It also means that a buyer will have the option to buy businesses that would otherwise be unaffordable. From a seller’s perspective seller financing acts as a marketing tool because, as previously mentioned, it means you are willing to bet on the future of the business. It also increases the pool of buyers who can now consider buying your business.
Is it always a good idea to offer seller financing? It depends. If you are someone who just wants out and has no desire to have any attachment to your business after the sale, then maybe seller financing isn’t for you. If you are in a very hot industry that is currently attracting cash buyers then you might get away with not having a seller financing conversation at all. Even if you don’t love the idea of seller financing it’s typically a good idea overall to leave all financing options open when you list your business. You don’t want to miss out on a great buyer and a great return because you decided too soon to refuse a more creative financing deal. Keep that door open!
Have you decided to sell your business but hadn’t yet considered offering seller financing? Did you buy your business using seller financing and have an experience to share? Please feel free to leave us questions or comments.
Keeping Your Cool: Advice For Business Sellers
We get it. Your business is your baby. Your blood, sweat and tears. When you are preparing to separate yourself from your business after a sale, it can be fairly difficult to remain objective. After all, this business has been your life for a long time. The level of emotions you encounter might surprise you. Add to that the need to work through a deal with a buyer who, in most cases, is a complete stranger.
Anyone who is selling their business hopes to find a buyer they like. Negotiating with someone whose personality meshes well with yours is far easier than with someone you generally dislike.
The reality is you might not like the person buying your business. The good news is you don’t have to like them – you just have to get through the deal. The key is to remain calm, cool and collected.
It can take anywhere from 9 to 12 months (sometimes longer for niche businesses) to get your business from listing to closing. Even if you have a buyer it can take many months to get a deal all the way through. That time span can feel like an eternity if you’re working with someone you dislike.
Do your best to maintain your composure and maintain a level of professionalism in interactions with your buyer (whether you like them or not). This will make the transaction process far easier than if you let a clash of personalities devolve into a miserable time for everyone. Deals fall apart every day that didn’t have to because people let their feelings get hurt. Business transactions are just business – so reminding yourself of that regularly will help.
What if I totally hate the buyer?
You don’t have to sell someone your business, but their money is as good as anyone else’s. There’s also no way to know how long it will take you to find another buyer. Instead of walking away, do what you need to do to keep your distance from your buyer if it turns out that you’re not going to get along. Use your business broker for any and all communication between you.
Another thing to consider? In most business transactions there will be a 2-week training after closing. This training will be part of the purchase contract and ensures that the new buyer has the chance to learn everything they need to now in order to operate the business going forward. If you’re not a big fan of your buyer this 2 weeks can seem torturous – but you have to remember that at the end of the day the goal was to sell your business and get a financial return. If all that it’s going to take to reach your goal is 2 weeks – you can do it.
Are you thinking about selling your business and are worried about finding a buyer you can work with? Do you have an experience with a buyer you’d like to share? Would you like to know more about the training period after closing? Leave any questions or comments, we would be happy to help.