When a buyer and seller come together, financing is not always at the top of the priority list – but it should be! Many companies listed for sale never reach the final stage, and lack of financing is almost always the reason these businesses do not sell.
While it would be a much easier process if all buyers brought the entire amount including contract price and associated costs in cash to the closing table, this rarely happens.
Typically, seller financing and/or SBA loans are used for financing a sale. SBA loans are guaranteed by the Small Business Administration and are provided to small companies.
Here are some tips for potential sellers in order to finalize your sale:
- According to the Small Business Administration website, www.sba.gov, the average amount of time business owners begin preparing for the sale of their business before a successful sale goes through is three years. In order to obtain the highest dollar for your business, get multiple and consistent years of earnings. .
- Accounting quality is very important. An independent CPA should be working with your company. Accounting issues and statements that do not match up from year to year are a big warning for finance companies as well as buyers. If there are significant line items or particular issues on your financials, be upfront and point them out. Spend the money on good accounting and it will more than pay for itself.
- Show earnings. The time to strategically limit profits for income tax purposes is not while you are preparing to sell your business. No bank wants to see a company that loses money every year and bases its sales price on “add-backs.”
- Have buyers pre-qualified. Banks want to see buyers with industry experience, proper equity injections and liquidity. It does no good to show your businesses to those that cannot qualify for financing unless they are cash buyers.
- Plan to have a seller note involved in the transaction. Due to changes in SBA financing, it is often necessary, and it also shows good faith in that you are willing to stand behind the business for sale.
- Plan to stay on for a period of time. This also shows good faith that you are willing to help the new owner be successful.
It is always helpful to have a professional on your side. Business Bankers are trained to understand these types of transactions. When you are looking to divest, make sure you talk to your Banker so they can help you strategize.