Debt happens, especially in the day to day operation of a small business.
You might owe money to your vendors, you might owe your landlord – small business debt comes in many forms. Here’s the thing:
While most of the time debt is a perfectly acceptable thing to have on the books – the perception of that debt by buyers might hurt your chances of selling.
Why? New business buyers will probably be freaked out by debt. They just will. They don’t yet understand how debt is used to run a business, and they will also be looking at businesses other than yours who have no debt at all.
While it may not be possible to completely eliminate your business debt, if you are considering selling sometime soon you might want to consider paying down as much of it as possible. It will add money back into your books – money you can leverage for a higher sale price.
Another reason to pay off the debt before you try to sell? A buyer might insist you pay off the debt with the proceeds of your sale, so leaving it on the books will only decrease the amount you walk away with.
The message here is while it may leave you a bit strapped on the cash front, paying off any business debt before you list on the market will make your business more appealing to buyers and will help you negotiate for more money at the closing table.
Having to live a bit cash-strapped may also help you tighten up your budget by streamlining your spending. It can motivate you to implement your ideas for growth that bring more cash in the door – all things that will make your business stand out from others on the market.
Are you considering selling your business but have more debt on your books than you’d like? Would you like to know how a deal that involves debt might be structured? Please feel free to leave any questions or comments here and we would be happy to help.
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