Seller financing - talking points/ benefits to the seller?
March 18, 2024
by a searcher from University of Colorado at Boulder in Parker, CO, USA
In my search thus far, seller financing is somewhat available, but it also seems like the sellers (often first-time sellers) aren't fully aware of why it may benefit their situation. What are the benefits of offering seller financing in a business acquisition? Some advantages include attracting more buyers, securing a higher sale price, creating a steady income stream, and enjoying tax benefits (details welcomed here). Are there any additional aspects or value propositions you would consider when offering seller financing?
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
1) If as a seller you want to get paid on current revenues & EBITDA but it has not historically been as high as it is now, then I think you will have to take some sort of seller note based on performance or an earn-out to make the deal work to get the maximum price.
2) The opportunity to earn interest and have an income stream going forward.
3) Some potential tax benefits of deferring some of your gains from the sale. I would speak with an accountant or tax attorney to learn all of the strategies here.
4) Attract more buyers and make it easier for buyers to qualify for the financing to get the deal done.
5) Make buyers confident that you are confident as the seller the business will continue to be successful going forward.
6) Should the buyer have issues in the future, be in a position where you might be able to step back in, potentially at a much reduced price. I have seen several sellers in the past buy-back companies they sold at steep discounts, build them back up, and sell them again later.
I hope this helps.
from University of Michigan in Detroit, MI, USA
That said, when negotiating the LOI, don't view any one item in a vacuum (including seller financing). Think of it as one component in the broader deal. Perhaps seller financing is really important to you. If so, what are you going to give in return? What is really important to the seller?
That final question is key. Sometimes softer items are really important to a small business seller. Will you continue to use the same trade name? Will you promise to retain the seller's employees for some amount of time? In other words, don't try to oversell the benefits of a seller note.
Let me know if you want to discuss further. Always happy to chat.