Sell your $600,000 business for $800,000 faster
Want more people interested in buying your business? Offer it on terms.
Why and how to use Seller Financing to buy any business.
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Want more people interested in buying your business? Offer it on terms.
Why and how to use Seller Financing to buy any business.
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Let's say you have a business that makes $200,000 per year profit and in your industry the average multiple is 3x, so your sales price is, if you are lucky, $600,000 ($200K* 3).
But what if interest rates high, market down and can't find a buyer at that amount?
But what if interest rates high, market down and can't find a buyer at that amount?
At a $600,000 sales price, you have a limited pool of potential buyers. Maybe people in your industry (competitors) or those who can qualify with experience to get a loan
Let's say you can't sell, what now?
From my experience, Seller Financing
More buyers / higher price
Let's say you can't sell, what now?
From my experience, Seller Financing
More buyers / higher price
If you want to Seller Finance, you increase the price to account for increased risk and time.
So maybe you go with $700,000 sales price at 3.75% payments over 15 yrs, balloon in 5 yrs (they have to refinance to pay you off in 5 yrs)
So maybe you go with $700,000 sales price at 3.75% payments over 15 yrs, balloon in 5 yrs (they have to refinance to pay you off in 5 yrs)
I find increasing the price allows you to offer a lower interest rate, you get the same dollars, but it's more attractive.
Payments on a 10 year loan at 3.75% would be approx $84,000 per year. If the business makes $200,000 per year, then it's almost a no brainer for the Buyer.
Payments on a 10 year loan at 3.75% would be approx $84,000 per year. If the business makes $200,000 per year, then it's almost a no brainer for the Buyer.
At the end of 5 years, you will still be owed approx $383K and will have collected $420K in payments.
So when they refinance in 5 years, you will be getting $803K ($420K + $383K) for what was your $600K business.
Yes time value of money, Yes opportunity cost etc are factors.
So when they refinance in 5 years, you will be getting $803K ($420K + $383K) for what was your $600K business.
Yes time value of money, Yes opportunity cost etc are factors.
You can't sell to some random person with no experience who will screw up the company. If you do, make sure you have enough other security in place to collect (pain in the butt) or may end up with the business again.
Personal guarantees are great, but not always easy to collect.
Personal guarantees are great, but not always easy to collect.
If you really want out of business, but believe in it and want to just collect checks, Seller Financing may be for you.
NOW AS A BUYER, use this in reverse to convince a Seller as to why they should Seller Finance for you.
END
NOW AS A BUYER, use this in reverse to convince a Seller as to why they should Seller Finance for you.
END
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