When is Price Not the Most Important Factor When Selling Your Business?

When the Full Content of the Deal in its Entirety is Fully Explored and Strongly Considered

Price, Financing terms and conditions, Taxes, Debts, Real Estate, Sellers goals, and the qualifications/resumes of all parties involved are all factors that should be fully considered in a well thought out deal.

"If I could get $X for my business I would sell it Today."

"I need to get $X to sell my business"

"I know my Business is worth $X"

The above are comment statement s and feelings business owners share in the consideration of the sale of their business. But no business operates within a vacuum and many factors affect the business outside of the business including the rest of the industry, and local, regional and worldwide business climates. What sort of a return should one get on a business purchase is somewhat relative to what one can achieve in other investments. If one can expect a double digit return on a conservative investment, this may drive up what one may expect from a riskier investment in a business. But as investment returns on fairly conservative investments go down, interest in business acquisition may go up, and expected/projected returns reduced.

The Price of your business is not determined in a vacuum as well. The terms of the sale, the other party or parties involved with the sale, financing and terms, and the timing of the sale are a few of the important factors(outside of price) that can greatly affect the success of a sale.-

Seller financing in the sale of a business is predominant in today's economy. It is easy to think that getting a "big pile of cash for my entire business at closing"- is always best. "Cash is king" - This is a statement that is true very often, but not necessarily during the sale of your business. Offering Seller financing greatly increases the pool of potential qualified buyers. Tax advantages can surface from a well financed deal. If the Seller strongly believes in the likelihood of the Buyers success, and if the Seller does a good job of procuring adequate security, assurances, defaults, and guarantees, the Seller may greatly mitigate his/hers debt risk exposure. Additional Interest Income may also be realized as the result of a well thought out Seller financed business sale.

For example if someone sold a business 1 year ago for 100% cash received at closing, paid taxes on the gain and proceeded to protect those proceeds by investing in a conservative S&P Fund- How much money would that Seller have today? They may be disappointed and searching for a new source of earnings. I understand hindsight is 20/20, but generally a well positioned deal that is thought out with all the components of the deal fully considered greatly increases the likelihood of a successful transaction.

It can make sense to sell for a lower asking price because the terms and conditions of the seller note ultimately bring in more dollars to the Seller over the term of the note. It can make sense to sell to one individual for a lower asking price because of that person likelihood of succeeding and thus fulfilling the terms of the note. It can make sense to sell at a lower Sell price because the terms and conditions on the Seller are less restrictive and potentially have less risk or unknowns involved. It can make sense to sell for a lower Selling price because the lease terms on the property associated with the business are at mover favorable terms.

When you are selling your business you are selling a " package", with many elements involved with that package. The Sale of a business involves a package of closing documents and details. Price is one significant part of that package, but the many other elements included in the purchase offer greatly affect the success of this most important package.

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Comments

Tue, 12 May 2009 at 8:29 PM, by Sam Liss
Really excellent comments. I’m also a business broker – - way up north in Boston – - and see many of the same issues. I’ve attached below an article on making sense of an offer. Perhaps it can be of some use. Thanks again for the great info.

Making Sense of an Offer To Purchase Your Business
http://www.coral-group.com/Business_Broker_-_Offer.htmll

Sam Liss
The Coral Group

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