buy business sacramento Tag

Financing A Business Sale: 6 Questions To Know

How the purchase of a business will be structured is something that must be dealt with early on in the selling process.  The simple fact is that the financing of the business sale is too important to treat as an afterthought.  The final structure of any sale will be the result of the negotiations between buyer and seller.

In order for the business sale to be completed in a satisfactory manner, it is vital that the seller answers six key questions:

1. What is your lowest “rock bottom” price?  It is important for sellers to know what is the lowest price they are willing to accept before they begin negotiations.  Far too often, sellers have not determined what price is their “lowest price” and this can literally cause negotiations to fall apart.
2. What are the tax consequences of the sale?  Just as sellers often don’t know what their lowest price is, it is also true that sellers often don’t think about the tax consequences of the sale.
3. Interest rates are no small matter.  It is important to determine what is an acceptable interest rate in the event of a seller-financed sale.
4. Have unsecured creditors been paid off?  Does the seller plan on paying for a portion of the closing costs?
5. Will the buyer have to assume any long-term or secured debt?
6. Will the business be able to service the debt and still give a return that is acceptable to a buyer?

Studies have indicated that there is a direct relationship between more favorable terms and a higher price.  In particular, one study revealed that offering favorable terms could increase the total selling price by as much as 30 percent!

Business brokers are experts in what it takes to successfully buy and sell businesses, and this is exactly the kind of insight and information that they have at their disposal.  Experienced brokers are able to use their knowledge of everything from current market conditions and financing strategies to the knowledge of previous sales and a given geographic region to help facilitate successful deals.

Usually, selling a business is one of the most important things that a business owner does in his or her professional lifetime.  Business brokers understand this fact, and they understand the importance of making certain that the deal portion of the business sale is structured correctly.  The facts are that the way in which a sale is structured could mean the difference between success and failure.

Structuring a deal in such a way where it is the best possible deal for both the buyer and seller, helps to ensure that a deal is successfully concluded.  Working with a business broker is one of the best way to ensure that a business will be sold.

Copyright: Business Brokerage Press, Inc.

One Way To Decide When To Sell Your Business

How do you know the right time to sell your company? One answer to this age-old question is that the time to sell is when someone else is willing to invest more in your business than you are.

When you start a business, nobody is willing to invest in its success more than you. You’ve already worked a 40-hour week by Wednesday and, if you’re like most founders, you’ve invested a big chunk of your liquid assets in getting your business going.

You’re all in.

In the early days, you are willing to risk your business on a new strategy because the business is pretty much worthless. As the Bob Dylan lyric goes, “When you ain’t got nothing, you got nothing to lose.”

As your business grows and becomes more valuable, you may find yourself becoming more conservative, unwilling to risk the equity you have created inside your business on your next big idea. You have reached a point where someone else may be willing to risk more time and money for your business than you are.

Peach New Media 

David Will is the founder of Peach New Media, which he started back in 2000 as a reseller of web conferencing. In the early days, Will changed his business strategy frequently, trying to find an idea with legs. After a number of pivots, he landed on selling learning management software to associations.

The business grew nicely and by 2015 Peach New Media had 40 employees and then received an attractive acquisition offer from a large private equity company. Will was conflicted. He loved his business and treasured the team he had built. At the same time, the acquirer was offering him a life-changing check.

In the end, Will realized that he had become somewhat more conservative as his business had grown and the potential acquirer was willing to make a big bet on integrating Peach New Media into another one of its acquisitions. Will realized he had reached a point where his appetite for risk in his own business was lower than his potential acquirers. Will decided to sell.

When To Sell

The point where a buyer is willing to risk more than you are happens at a different stage for everyone. Let’s say you have a business worth $1 million today. Would you be willing to risk the entire thing on a new strategy for a shot at making it a $10 million company? Many entrepreneurs would take that bet.

Now imagine you have a company worth $10 million and your business represents the bulk of your net worth. Most would argue $10 million is life-changing money. Would you be willing to risk your entire company for a chance to make it a $100 million company? The marginal utility of an extra $90 million is minimal—we all only need so many cars—but the risk is significant. Fewer owners would bet $10 million for a chance at $100 million.

What if your business was worth $100 million? Would you risk it all for a long shot at becoming a billion-dollar company? It is hard to imagine any one person betting $100 million dollars on anything, but if you’re the CEO of a billion-dollar corporation with ambitious growth goals, $100 million is a bet you may be willing to make.

When someone else is willing to invest more in your business than you are, it is probably time your company finds a new owner.