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5 more seller finance options to consider when selling your business
| Guest post by: Andrew Rogerson |
Article Overview: This article offers five more reasons to use seller finance when selling your business. These options are less known but as effective in ensuring success when making a business transaction. A few options include license agreements, consulting agreements and different kinds of insurance.
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Free Download - How to sell a business By Andrew Rogerson |
5 more seller finance options to consider when selling your business
The need to use seller finance when trying to sell your privately held company has come back into vogue due to the lack of third party finance being readily available. Some techniques less known and used, however, are available but require a clear understanding between the seller and buyer and may then need good legal agreements to clarify, protect and define the responsibilities of each of the parties. Here are five options both a seller and buyer may want to consider.
Option One: if the seller of the business has created intellectual property or some proprietary idea that they don't wish to sell as part of the business transfer, but the buyer needs that knowledge or invention in the business, the seller and buyer can enter into a licensing agreement. The buyer would pay an agreed fee as a royalty.
Option Two: Another means of a seller receiving payment from the buyer of the business can be via Consulting Agreements. These would be constructed according to what works for both parties but provides a way of maintaining the continuity of knowledge the seller has from owning and operating the business while the buyer acquires that knowledge.
Option Three: If the owner of the business wishes to sell because they have arrived at retirement age but the seller has children working in the business, part of the purchase price negotiations could be the buyer extending a Family Employment Guarantee. This meets the need of the seller because they don't have to worry about their children no longer being able to work in the business and it comes with a payment the seller is comfortable accepting.
Option Four: Two important benefits to most business owners are health insurance and life insurance. Health insurance coverage; especially for business owners with a pre-existing illness means they cannot readily change their health insurance policy to another company. Negotiating the purchase price where the buyer will continue to allow the seller to keep the same policy and pay for it can be a great benefit and relief to the seller. Life insurance and indeed other forms of insurance can be handled in the same manner.
Option Five: One of the advantages of being an entrepreneur is that you can claim expenses that an employee is unable to claim. Membership at the best golf course in town, driving the latest model car, an annual vacation to Lake Tahoe and other perks sometimes become necessities for some entrepreneurs. Structuring the sale of a business to continue the sellers ‘perks' can be an appealing option; even if it's only for a year or two.
Seller finance does not have to be restricted to purely a seller note on the transaction. A seller can be used to receiving many business ‘perks' they have enjoyed from owning and operating their business. Allowing the seller to continue enjoying those ‘perks' can be a good strategy when buying a business.
In today's economy with third party lenders such as banks so reluctant to lend, seller finance is a good way to go if you you own a business and wish to sell. Being creative with how you handle seller finance can mean the difference to selling or not.
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About the Author: Andrew Rogerson RSS for Andrew's articles - Visit Andrew's website Andrew Rogerson is a 5-time business owner that loves helping entrepreneurs sell or buy a business. Andrew currently holds the Certified Business Intermediary (CBI) designation from the International Business Brokers Association (IBBA), the highest designation awarded by the IBBA. Andrew has also earned the Certified Business Broker (CBB) designation from the California Association of Business Brokers (CABB.) He holds a Certified Machinery and Equipment designation (CMEA) from the NEBB Institute and is a Certified Senior Business Analyst (CSBA) with the Society of Business Analysts. Andrew is a member of the Sacramento Metro Chamber of Commerce and past Chair of the Sacramento Chapter of the California Association of Business Brokers. Andrew is also the author on a series of four books: Successfully Sell Your Business, Successfully Buy Your Business, Successfully Buy Your Franchise and Successfully Start Your Business. For more information go to http://www.businesstransactionbooks.com Click here to visit Andrew's website   Successfully buy a business |
Related Forum Posts
I think Craigslist is better than Ebay
- As a relative novice to selling online, I found that Craigslist is a very effective tool. In less than a month, I've sold over $800 worth of my excess tennis gear (which I was planning on getting rid of) and I haven't really lost much from my original purchase price. The postings on Craigslist are very search engine friendly on Google and I feel it's an easier site to use than Ebay (as a seller).
Unlike Ebay there's no seller/posting fees on Craigslist and you're not even limited to selling to "local" consumers. I've had international buyers contact me and pay for the shipping costs. These buyers will pay me first via PayPal, and then I'll simply ship out their product and provide a tracking code (and the parcels are automatically insured for up to $100).
Do any of you have any selling experience on either platform you'd like to share?
Re: When do you process online orders?
- [quote="litekepr":dwjxzl56]If the shipping takes longer - I'm find with that IF the seller made that clear on their sales page and IF they communicate about what's happening. Its the sellers who say they ship immediately and then send later with no communication that irritate me. I always pay immediately and expect quick turnaround. I ordered a PDA and no joking - it didn't arrive for 5 months and the seller never did communicate with me or respond to any messages. When it did finally get here, I looked at the ship date and once they finally shipped it out - I received it within a week.
Shri[/quote:dwjxzl56]
Hi Shri,
As an online seller, I'll always communicate the details (e.g. ship date, confirmation/tracking code, estimated time of arrival, etc.) and sometimes even the options (i.e. Canada Post vs UPS cost to ship) to the buyer.
But when your package didn't arrive for so long, why didn't you write to bug the seller?
Proper planning to get investors
- There is no point looking for investors if you don't have a well thought out business and marketing plan. You will find no interest.
Then your options are banks, finance companies, venture capitalists or family and friends.
Tax returns!
- Well, this is new on me. i had no idea you could sell a site off. If it's anything like purchasing a non-internet business then you need to check into multiple things. Will you need to finance to purchase? If so, you'll need to calculate the cash flow. Also, find out if there will be any add backs to the cash flow, for example, are there other workers invovled to keep the site running...perhaps workers you won't need when you take the site over? Their salaries can be added back to the cash flow if you will not need them.
You must see the top page of the last year tax return (never go off just the P & L's). Did the seller run anything personal thru the tax returns that you wont? That's also considered an add back to the cash flow.
What is the gross sales for the 12 months? What is the net income for the 12 months? Make sure the purchase price is justified. You can calculate a ball park range on this by doing 30 - 50% of the gross sales for the year or 3- 5 times the net earnings.
What is the web traffic like? Is it steady? Do you have time to run the site or will you need to hire someone to manage it? Make sure the business is supporting itself and is profitable. Does the seller have an initial business plan from when they bagan the business, so you can look it over?
Finding problems
- Absolutely Shri-
I can see how someone could come in and find the problems to find out where the owner went wrong in order to turn it around. So perhaps if the business was losing money and the seller held off selling for a while and did something like this so it would look better on paper, a lender would then consider approving the loan for the purchase of said business.
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