Why “How Long Will This Take?” Is The Wrong Question For Business Buyers

How long does it take to buy a business?

 

This is a common initial question as a business buyer begins their search – but it’s not a great question.

 

 

First of all, it’s almost impossible to answer. Every small business is unique, and as such no two business purchase transactions happen on the same timeline. It typically takes about six months for a new buyer to enter the market, find and purchase a solid business. Please understand that this six month time span is by no means a hard and fast truth. The length of your transaction will be contingent on many, many factors.

 

Second, this isn’t the question you should be asking if you are thinking about buying a business.

 

Ask these instead:

 

What businesses could I realistically buy with the funds I have available?

 

Do you have the capital ready and available to buy and run a business? This isn’t anything like buying a house or a car. You can’t walk in with zero funds or only a small percentage down and expect to finance the rest. Not only do you need to have (at the very least) a substantial down payment (if seller financing is an option or if you are looking at third party financing like a loan from the Small Business Administration (SBA)) you also need to have enough funds to retain some working capital that will be needed to pay for things like new inventory, payroll and the like when you first take over.

 

A note here: You don’t have to have an enormous amount of money to invest in the purchase of a business. There are many very affordable options in the small business market! You just need to be realistic and conservative with the funds you do have in terms of what business you buy. 

 

What kind of businesses meet the goals I have for business ownership?

 

Many new business owners walk into the business market under the mistaken assumption that anyone can own and run any type of business. Nothing could be farther from the truth. To keep your business profitable, you will need to be able to both navigate and compete in the market you are in. If you have little to no relevant experience in your business, if it’s a business too large for you to handle, if the business has hours or ownership responsibilities that don’t mesh with the personal life you want to have – it’s not going to work. 

 

Don’t make the mistake of asking the wrong questions. Talk with your business broker about what your financial means are and what type of business would best suit the goals you have. Starting with the right questions will make you a more successful business owner in the end.

 

Are you thinking about buying a business? Do you have questions about seller financing and the best type of business for you? Ask us! Leave us a comment or question here, and we will be happy to help you.

 

 

 

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

 

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Seller Financing – A Business Buyer’s Best Friend

 

If you are considering buying a business, you may have looked at prices of local businesses during a cursory search and wondered how you would raise the funds to buy one. In the vast majority of small business sales seller financing will be involved, which is great news for business buyers.

 

What is seller financing?

 

Seller financing happens when the business seller finances a part of the deal, essentially loaning the buyer a part of the purchase price.

 

Why does a buyer need to consider seller financing? Many buyers who are new to the business market initially look for traditional means of financing, like a loan from a bank. Unfortunately banks are often unwilling to finance small business deals.

 

Why? A bank typically only lends money if they are sure they will be repaid and if there is collateral equal to the amount loaned they can take possession of in the event of a default. A house fits this mold quite well, as a home buyer must prove steady income before getting a loan and the house itself will serve as collateral because the bank can sell the house without having to take a loss (because the home will not lose value simply because the ownership changed).

 

This is not the case with a small business. When a small business changes hands, in the eyes of a traditional lender the very experienced management/ownership is being replaced by new (and therefore inexperienced) management/ownership. In addition, the value of a business is not just found in the tangible assets alone, so a bank would not be able to recoup any losses by selling the business if a new owner defaults on their loan.

 

What this means for the business market is traditional financing is highly unlikely, so if a business seller wants to get a deal done they can either wait for the ever-illusive all-cash offer, or they can offer to finance part of the deal.

 

What does a deal using seller financing look like? The answer is it really can look like almost anything. Typically the buyer must come with a substantial down payment, and the deal is structured so in the event of a default on the financing, the seller takes back the business. Many seller financing deals also include provisions where inventory must be kept at a certain level (so the seller wouldn’t have to replace the inventory after taking the business back).

 

Why is seller financing great for buyers? First and foremost, it allows buyers to buy businesses that would be beyond the reach of those without a substantial amount of cash. Second, it forces a seller to keep some “skin in the game”, meaning the seller has a vested interest in keeping the business going and profitable long after the business changes hands, otherwise they won’t get paid back. Sellers who are willing to offer financing will typically be much more helpful for a new owner with regards to training and motivated to build the business with an eye on the future.

 

If you are a buyer interested in looking at businesses where seller financing is an option, talk to your business broker. They will be able to find a business that will fit with your goals.

 

Are you a buyer who has more questions about seller financing? Would you like to know what a seller financing deal would look like for you? Please feel free to leave us a comment or question, and we would be happy to help.

 

 

 

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

 

 

 

 

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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.

 

 

 

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

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Why Offering Seller Financing In A Booming Economy Is A Good Idea

 

If you are considering selling your business, then you probably know what a complicated process it is can be.

 

The best way to successfully maneuver the path to a closing table is to be very flexible, and this flexibility is pivotal when considering whether or not you should offer seller financing.

 

Sure, the economy is currently booming. If you were trying to sell your business back mid-recession, then offering seller financing was an absolute must as traditional lending disappeared and most buyers didn’t come with fist fulls of cash.

 

Now there are more cash buyers in the market than there have been in recent years, which is terrific news – but if you limit your buyer pool to only those with all-cash offers, you won’t be doing yourself any favors.

 

Why?

 

Flexibility. Not every business is right for every buyer, so limiting your pool of buyers right out of the gate may keep you from selling your business quickly (if at all). This is especially true if you have a niche business that will have a hard time attracting a huge number of buyers anyway.

 

Also, a seller who demands an all-cash offer typically gets only 70% of their asking price in the end, while a seller who is open to the idea of seller financing gets somewhere in the mid to high 80’s. Do you really want to miss out on 15% or more?

 

Increasing your buyer pool by offering seller financing as an option also means you may have the opportunity to choose from multiple buyers and multiple creative offers – thereby creating a chance to get the best return on your business you possibly can.

 

Yes, we would all love full-price, all-cash offers that land on our desk the day our business hits the market, but in reality a flexible seller is a seller who will actually make it to a closing table.

 

Talk to your business broker about what amount of seller financing they think would be appropriate and what you are comfortable offering. Listen with an open mind to any offers that come in from buyers who are asking you to finance part of the deal. In the end, it is still up to you whether you take an offer or not – just keep your options open throughout the process.

 

Are you considering offering seller financing for your business and want to know that the terms of a typical deal look like? Do you have more questions about how much of a deal you should finance? Ask us! Please leave any questions or comments and we will be happy to assist you.

 

 

 

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

www.InfinityBusinessBrokers.com

 

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Need Capital? Business Buyers & Seller Financing

Seller financing can make small business deals possible, as it allows buyers (who don’t have all the capital necessary or who are unable to raise funds through more traditional lending sources) the opportunity to buy a great business.

 

 

 

Our economy is in much better shape than it was during the recession, and as such the business market has changed. In the midst of the recession nearly all deals came with a fair share of seller financing as traditional lending was essentially nonexistent and any buyers in the market weren’t flush with cash. This was great news for buyers as they could consider businesses that would have otherwise been out of their range.

 

Now that the economy has dramatically improved, the tides of seller financing have turned.

 

First and foremost, the improved economy means there are more cash buyers coming to the table that will directly compete with those who need a seller financed deal. In terms of recently completed deals, seller financing still holds as a close second to cash, but now buyers need to come with at least 50% down if they hope to compete with other buyers and get a deal to closing. There are, of course, exceptions to this rule as every business deal is different – but the days of financing more than half of a transaction are probably gone for good.

 

It is also easier now than it was just a few years ago to get more traditional bank financing or a SBA (Small Business Administration) loan, but many financial institutions are still gun-shy about risky small business deals as the memories of the recession are still relatively fresh in everyone’s mind.

 

What if I can’t get a bank loan and the business that I’m interested in doesn’t qualify for a SBA loan? How can I get seller financing?

 

If you are interested in seller financing, let your business broker know as it will help in narrowing your purchase options. Your broker can look for business sellers who have indicated they would be open to a deal that includes some seller financing. Next, you need to be prepared to offer at least 50%, if not more, of the purchase price up front if you want any seller to take your seriously. No one is going to finance 100% of the deal or anything close to it.

 

Do you have more questions about financing options for the purchase of a small business? Would you like to know what the terms look like for a typical seller financed deal? Contact us today or leave us a comment or question here. We would be happy to help!

 

 

 

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

www.InfinityBusinessBrokers.com

 

 

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What You Should Know – Selling Your Business: Do I Have To Finance The Sale Of My Business?

Why Is Seller Financing So Important To The Sale Of My Business?

 

Surveys have shown that a seller, who asks for all cash, receives on average only 70 percent of their asking price, while sellers who accept terms receive on average 86 percent of their asking price.  That’s a difference of 16 percent!  In many cases, businesses that are listed for all cash just don’t sell.  With reasonable terms, however, the chances of selling increase dramatically and the time period from listing to sale greatly decreases.  Most sellers are unaware of how much interest they can receive by financing the sale of their business.  In some cases, it can greatly increase the amount received.  And, again, it tells the buyer that the seller has enough confidence that the business can, indeed, pay for itself.

 

Are you considering selling your business but are hesitant to offer seller financing? Do you have questions about how seller financing would work? Please leave questions or comments here and we would be happy to help.

 

 

 

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

 

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Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

9040 Town Center Parkway
Lakewood Ranch, FL 34202




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