Reasons for Precautions in Seller Financing
There various reasons to exercise precautions in seller financing when selling your business. It is true that the number of business selling deals have greatly reduced around the world. It is not only due to the hard economic times. It is also due to a dearth of seller financing which stops many of these deals from taking off the ground. This is the reason why sellers who are willing to finance their business sales at least in part are selling off faster than those who do nothing.
When a business seller offers seller financing, he allows a buyer to make a down payment and accepts an agreement for the remainder of the purchase price at a later date. In other words, the buyer only comes up with a partial sum which he pays upfront. The remaining part of the money is paid over a stipulated period.
A seller’s desire to partially fund a business sale is a major force of attraction for people looking to buy a business. This is because many buyers cannot meet the full price of most sale-able businesses and hardly receive any support from lending institutions. That is why some sellers are always faced with the decision to lower their selling price. Others collect only a partial payment upfront and have the rest spaced out over time.
Here are 3 things that you should consider if you plan on offering seller financing for your business.
1. Involved Risks
Although seller should take precautions in seller financing but it has become a necessity in today’s business world. It is not always the right option for every seller. Before you choose to go this route, understand that this business investment comes with a fair share of risk. You might expect a buyer to make a profit and complete the principal sum when he eventually takes over the reins of the business. Unfortunately, this is not always the case, the buyer could be faced with extra costs or mounting debts and be unable to pay up. Ensure that you are confident with the promises or guarantees made by the potential owner before placing yourself in an uncompromising position.
2. Avoid Pressures
Seller financing may have gained popularity and enjoyed relative success. However, this does not mean that you are destined to enjoy success. Some business buyers resort to strong-arm tactics and try to force sellers to handle part of the buying costs. Ensure that you always think with your head and not your heart. Go with what you see and not what you feel. Never allow anyone “sweet talk” you or feed you with empty promises.
3. Get a Financial Advantage
Many sellers may regard collecting a partial payment for their business as a desperate attempt to sell. This can offer you an advantage if you use it wisely. If you are not collecting all your money upfront, you can afford to sell by 10%-20% interest or more. In addition, you can also use self-financing to increase the value of your business via interest payments in future. What this means is that you can be earning an average of 8%-10% over a 5-8 year period.
About The Author
Alam Qureshi is a Certified Business Intermediary (CBI), Certified M&A Professional and Broker of Record at ProClient Brokers Inc., Brokerage. He helps business owners learn how to sell a business so they can get the maximum value for their company. call us 416 364 5550 or CONTACT US to get in touch.
Date modified: 10-31-2019