Price or Terms: The Structure of the Deal

You name the price; I name the terms.”  This old saying in negotiating the sale of a business remains worthy of consideration today. 

It often seems that full price dominates negotiations of a business deal, but price is just one part of the equation.  If a seller is willing to accept a relatively small down payment and carry the balance, a higher price can be achieved.  On the other hand, the more cash the seller wants up front, the lower the total price.  Experience tells us that if a seller demands all cash, barring some form of outside financing, total price is frequently lower – and in many, if not most, cases the chance of selling decreases as well.  Even in cases where outside financing is used, such as through the SBA or other lenders, the lender will do everything possible to ensure that the price makes sense.

“If we find you a business that nets you $250,000 a year after debt service, and you can buy it for $100 down, do you really care what the price is?”.  This is another saying that illustrates the issue of price vs terms.

Factors other than price may be as or even more important to a Seller.  For example, consider a seller with health issues who needs to sell as quickly as possible.  In his case, timing becomes more essential than price.  Another seller may place more importance on her business remaining in the community.  In her case, finding a buyer who will not move the business may supersede price or certainly influence it.

Likewise, the structure of the deal will both influence price and may be a more significant factor to either buyer or seller.  The structure dictates how much cash the seller receives up front and the terms of the deal.

These are reasons which demonstrate the importance of the business broker professional meeting with the seller prior to recommending a go-to-market price.  The broker needs to know what elements are important to the seller, as these issues have a direct bearing on the price.

A seller should look at the following factors and rank them according to importance to him/her.

•    Buyer Qualifications
•    Total Price
•    Total Cash Involved
•    Financing
•    Confidentiality
•    Commission/Selling Fees
•    Closing Costs
•    Exclusive Listing
•    How the Business is Shown
•    Advertising/Marketing
•    How a New Owner Continues the Business

•    What a New Owner plans to do about existing Employees

By ranking these items and discussing them with their Business Broker, a seller will receive helpful advice on price, terms and structuring the sale.

Copyright: Business Brokerage Press, Inc. and Northeast Business Partners


The post Price or Terms: The Structure of the Deal appeared first on Deal Studio – Automate, accelerate and elevate your deal making.

Northeast Business Partners is thinking about all of those affected by COVID-19. Visit our Resource Center for helpful information for businesses.Learn More
+ +