Seller financing a business is when a seller is willing to personally finance a portion of the purchase price. This increases the probability of selling your business. While this may be tempting, seller financing a business is a complex decision that should be taken carefully. Here are some tips to consider before deciding on seller financing your business;
Be certain to assess the risk: Seller financing your business means you will still be a part of the business even long after selling it. Unlike in a cash transaction, you don’t get to walk away from the business with the whole money in your account. In this case, you remain attached to the business for a predetermined period. If the business makes a profit, the business owner will then pay back your principal at the agreed interest rates. But if it fails to turn a profit, you may end up suffering a loss of interest among other losses that could be incurred. This means seller financing is almost like investing and it should be treated as such. There is a risk associated with it. However, the perks of it are not deniable.
If you will seller finance your business, you must treat it as an investment: Seller financing should not be viewed as a desperate measure to sell your business faster. It should be considered an investment which should be done in a clear-headed fashion to yield massive dividends for you. The fact that your capital remains in the business has increased the final selling price of your business especially if the business makes profits while your capital is still in it. Also, you may decide to keep your investment in your business for years to come. This will yield massive dividends for you.
If you want to seller finance your business, make sure it is added to your listing: Including seller financing in your business advertisement may serve as a way of attracting buyers. It attracts a larger pool of serious buyers because it shows confidence in the profit making apparatus of your business. It is an assurance to the prospective buyers that the business has a high probability of running at a profit.
Don’t refuse a healthy down payment: Seller financing is a risky venture. Hence, it is important to collect healthy down payments to spread the risk a little wider. It is in your best interest to finance no more than 20-30% of the sale price if you decide on seller financing. Doing more than that is taking on even more unnecessary risks.
Get legal and professional advice before doing it: Seller financing is not a venture that can just be rushed into. You must make sure you have discussed it with professionals and legal practitioners to cover every loophole and ensure that the risk you bear is minimal.
Seller financing is a risky venture. However, following the tips above will help you reduce the risk involved.