When you sell your business, try to avoid being the “bank” that finances the transaction. Here are some points and tips to consider:
1. Although you did a great job of managing your business, and all indications are the potential buyer could do the same, you don’t really know. It is somewhat like when a person applying for a job: There is one face in the interview process, and another face once on the job.
2. Many times, the new owner starts changing things in the business before learning the business, or doesn’t have the skills you thought the buyer had, then runs the business down, and becomes unable to make the payments. Then you get the business back in a basket, with its value far lower than when you initially sold it.
3. When most business owners sell their businesses, they totally disengage, and move on with their lives. The last thing they want is to have to take back the business, then have to rebuild it.
4. Most lenders set a minimum of $300,000 loan size. Lenders feel this is the point where it will make financial sense for them; smaller loans take the same amount of effort without giving the required return. If the loan size for your business will be less than $300,000, you may have no choice but to offer seller financing unless you can find a buyer willing to pay cash.
5. There are times when the greed glands become overpowering as you consider the higher price a seller can demand with seller financing and the 6% interest that can be earned. Take a deep breath, step back, and take some time to give the proposed transaction serious thought first.
6. An experienced intermediary can work with you on ways to structure the transaction to minimize the tax impact from getting all cash at closing.
7. If the only way you can sell the business is with seller financing, be sure you get a substantial amount down; in the 30% to 60% range is recommended. You want the buyer to be truly committed.
8. Be sure to insist that the buyer personally guarantee the loan and ideally has additional collateral to offer.
9. Engage a transaction attorney to review the purchase agreement and write the promissory note, as well as the mortgage.
If you would like a confidential, no-obligation analysis and discussion of what you can be doing now to prepare for when you are ready to sell your business, please call (888-893-6661) or e-mail (firstname.lastname@example.org) me. I serve customers nationwide. To learn more about my background and see customer recommendations, visit my LinkedIn profile at http://www.linkedin.com/in/dolansales.
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