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Seller's Time Frame Expectations

6/13/2017

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One of the most important items M&A intermediaries and business brokers have to manage are clients expectations regarding how long it will take to close a deal with an optimal buyer. Once the evaluation is completed and the emotional decision to sell has been made, most business owners quite naturally want to close a deal as soon as possible.

Of course that is our goal as well since our payday is dependent on the transaction closing quickly. But the reality is that the majority of deals take between six to twelve months to close once you enter the market.  A lot of this time is spent sorting through potential buyers trying to find the optimal buyer and during buyer's due diligence. Oftentimes sellers think the business is sold once we receive a signed offer and acceptance letter.  However, due diligence can take several months depending on speed of information being provided to the buyer and the number of professionals they have conducting the diligence (attorneys, accountants, etc.). Lastly, if financing is involved you can be assured to add another couple of months (minimum) to the process.

If you are selling your company on your own, you need to plan on it taking even longer, as you won’t have ability to dedicate 100% of your attention to the process because you have to continue running your business
. Also, the last thing a buyer wants to see is a downward trend in earnings, which is what oftentimes occurs once a seller stops focusing on the business.
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Benefits of Seller Financing

5/15/2017

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Are you preparing to sell your business? Take some time to think about what type of financing your potential buyer will need. Should you be willing to invest your own capital into the sale of your company?  What are the benefits and risks?  Let's first discuss the benefits.

Benefits of Seller Financing

Speedy Sale
Offering seller financing can expedite the time it takes to sell your business. With a limited amount of third-party capital, such as a traditional bank loans, having the option of seller financing on the table can increase the appeal of your business to potential buyers and speed up the selling process. If you are offering to front funds toward the sale, consider including your willingness to finance in your sale listing.

Price
Although the purchase price of your business will ultimately be determined by the market, offering financing to buyers will often yield a higher purchasing price than cash or commercially financed deals. Owner-financed businesses are typically more appealing to buyers, resulting in higher sale prices. 

Income
This means you will receive interest income beyond the actual purchase price. The interest rate is usually based on the current commercial rates.  This added income is a nice perk over just receiving the proceeds from the sale upfront.

Taxes
When you fund part of the purchase price, you effectively stretch out the financial gains received from the sale of your business over a longer period of time. This means your taxable income from the sale is also spread out. While it is generally easier financially to spread out the taxes owed from the sale, consult a financial or tax advisor on how it will affect your specific tax situation.

Buyer Confidence
Offering seller financing can help show your confidence in the business you’ve built and inspire confidence in your buyer. Much like any other major purchase, buyers are weary of getting a “lemon.” A willingness to stay invested in your business can help quell the fears a buyer may have about any underlying problems with the business and its long-term success.

Negotiations
When negotiating with your prospective buyer, you can use seller financing as a powerful bargaining chip, particularly if you are already interested in remaining involved with how the business operates post-sale. Seller financing can often be used in exchange for other concessions during the negotiation process.
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    Jeremy Hovater

    President, Sunset Business Advisors

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