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

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Comments & Replies: 4     Views: 4309     Posted By: Peter Siegel MBA  Peter Siegel MBA: BizBen Founder, ProBuy/ProSell Program Director



Topics: Selling A Business     Tags: selling a business



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. Itís 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.


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.


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.


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.


  Helpful Resources To Assist In Selling And Buying California Businesses
Joe Sandbank, Esq. - Legal Services

I have provided legal counsel to business buyers, sellers and brokers for over 17 years. With prior experience as a business broker and SBA loan officer, Joe brings both a practical and legal approach to all aspects of the business acquisition process.

Diane Boudreau-Tschetter: Escrow And Bulk Sale Services

California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.

Ranvir S. Sandhu, Esq. - Legal Services For Buyers And Sellers

I've worked at top Bay Area law firms and have extensive experience with business entity formation, mergers, dissolutions, conversions, employment matters, including experience in reviewing and negotiating transactional documents such as leases and purchase agreements.

Mark Chatow, Esq.: Legal Services For Buying, Selling Businesses

Mark has a broad range of small business purchase & sale experience from analyzing potential acquisition targets to successfully guiding buyers and sellers through the purchase & sale of small businesses. Mark can assist with contracts, negotiations, legal matters, etc. Reach Mark at 949-478-8393.

Helen Yoo: Escrow & Bulk Sale Services - Southern California

New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.

Brad Steinberg, Broker - Laundromat Specialists

PWS is the leading laundromat broker in California. Since 1968 PWS has brokered over 2,500 laundromat sales. With over 90 employees dedicated to the coin laundry industry, PWS has 18 licensed agents, a 3 person in-house finance department, 10 service technicians and a 20 person parts department.

Elizabeth McGovern: Escrow Services - SF Bay Area

McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.

Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence Services

Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 805-428-2063.


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