SELLER FINANCING

Can a Seller get all cash?
Yes, but only if a bank finances the difference between the Buyer's down payment and the selling price.

Why doesn't the Buyer just pay all cash for the business?
When buying a business, the down payment is normally equal to the Seller's Discretionary Earnings (SDE). For example, a Seller who is asking $1 million for his/her business with an SDE of $300,000 can expect to attract a Buyer with a $300,000 down payment. If a Buyer had $1 million for a down payment, he would be able to buy a much larger business with a cash flow of approximately $1 million.

How much down payment can a Seller expect?
The down payment is usually equal to the Seller's Discretionary Earnings.

How do I know a Buyer won't make a down payment and then run off with the assets without paying the remainder?
The most essential method of avoiding rip-off is to find a likeable and trustworthy Buyer with a reputable line of experience. Furthermore, because the down payment is equal to the SDE, the down payment is normally more money than the value of the hard assets.

Why is Seller Financing better than a Bank Loan?
Bank Loan Scenario

• Normally requires the Seller to take a small note.
• If a Buyer misses payments, the bank forecloses and shuts down the business.
• Faithful employees are terminated.
• Faithful vendors or creditors are not paid
• The Seller's note is worth nothing; the Buyer has lost his/her down payment

Seller Financing Scenario

• Seller doesn't pay taxes on sale proceeds.
• Seller gets a very good return on his/her money (typically 7% to 8%) and a very nice monthly income (typically 10 years).
• Seller's note is protected and the Seller is kept up-to-date on the health of the business through monthly P&Ls, monthly Balance Sheets, Right to Offset, inventory minimums, etc.
• Together the Buyer and Seller work out the problem, perhaps a payment or two are late, but the business continues and the Seller's note and the Buyer's down payment are safe.