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I Want All Cash For My Business. Will I Still Be Able To Sell It?




Comments & Feedback From Pro Intermediaries & Pro Advisors On BizBen:

Contributor: Peter Siegel MBA: BizBen Founder, Lead Advisor   Comment # 1002
The idea of getting a large sum cash payment for your business is every business owners dream. But, in order for a seller to enhance their ability to sell at the highest possible price, they need to educate themselves as to the consequences of an "all cash" settlement and keep an open mind about some seller financing as part of the transaction. Actually, this is especially important in today's lending market. Keep in mind that seller financing can be structured in a less risky manner and it carries tax benefits with it as well. We highly recommend and strongly encourage you to discuss this option with your broker, CPA or tax attorney. The biggest issues with wanting all cash is that you may not be able to sell your business at all. Frankly, if you are completely set against providing at least 10% seller carry back, the likelihood of you ever selling your business is near impossible. It s your business and the choice is ultimately yours, but if you are looking to receive the best possible price or even sell your business at all, an all cash payment for your business is most likely out of the question.

It's possible, and it happens, less now than in the past, because buyers where able to receive money from either a HELOC out of their house or because finding loans was easier than it is now. A seller who is willing to carry a note or a deal with terms can widen the pool of buyers and the seller may receive a higher price for their business than if they received all cash.

Contributor: Transactional Attorney   Comment # 1024
If your business is priced fairly and is in the lower end of the small-business price range where more buyers have sufficient cash, then an all-cash sale is not out of the question, but you will still be limiting the buyer pool and making even well-qualified buyers wonder if there's something wrong with the business.

If you do decide to go the seller-financing route, it's important to pay close attention to how your loan documents are drafted. Many sellers unfortunately rely on escrow to draft these, and don't find out until there's a default that they are not as well protected as they thought they were.

I couldn't agree more. Most sellers start out with "I want all cash;" the smart ones (and the ones who end up with more money) offer "some seller financing for a qualified buyer."

Why?

- More potential buyers will be attracted to the offering
- The buyer will be able to pay a higher price if the can leverage their investment cash.
- The buyer will almost always need at least 10% (maybe 15%) seller financing in order qualify for SBA or even conventional bank financing.
- The buyer has more confidence in the value of the business if the seller has some "skin in the game."
- Consequently, the buyer will be more likely to not only purchase the business, but also pay a higher price.

Frankly, there is little if any risk to the seller because, typically, if the seller is "taking back" a loan of 10% to 15%, the buyer is often paying 10% to 15% more for the business than he would in an all-cash sale.

And, in those circumstances where the seller can have the debt well-secured by good collateral, an installment contract of sale with a large portion of the purchase price (40%-50%-60%) being paid to the seller over time can result in the seller getting a much higher price, a higher-than-market interest rate, and (sometimes) a more favorable tax treatment.


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