Overpricing a business, or demanding unreasonable terms, will kill a deal before it even has a chance to be considered. Realistic terms are critical if you want to maximize the selling price for your business. "Think like a Buyer - Buyer's Buy Cash Flow".

Buyers are trying to buy as much business (Cash Flow) as they can get for the money invested in the down payment. Most business owners would like to sell for all cash and get the same price the business would produce with excellent terms. Intelligent Buyers will not pay the same price for a business when the owner is asking "all cash", as they will when an owner will take a reasonable down payment, finance the balance at a fair interest rate, and provide a reasonable length of time to repay the note portion of the sale.

The following chart of price and terms is based on analyzing thousands of business listings:

Twenty percent down will not produce a higher percentage of completed sales that one-third down, but it will produce a faster sale. This is because more Buyers can afford the down payment.

The most common transaction is one-third down payment and the owner financing the balance. Over eighty percent (80%) of all businesses sold in the mid-market arena since 1990 have been sold with one-third or less down and the owner financing the balance. This is normally the best way to obtain the full value of the business. A Buyer will have too much invested to let it fail. The Seller will have too much at risk to misrepresent the business. The Buyer and Seller will become a team. Both of your futures are dependent upon the success of the business. Since the Seller is financing the majority of the purchase price, the Buyer is less likely to get into hard negotiations with the Seller. Who wants to argue with their banker when they are trying to get a loan? As the down payment percentage increases above the one-third level, the total purchase price is reduced by a disproportionate amount.

As an informed Buyer, you should be aware that:

• when a Seller is asking for one-half of the purchase price as the down payment, this will not only reduce the amount he will likely receive by approximately twenty percent (20%), but his chances of selling the business will be reduced to approximately forty percent (40%); and  

• an all-cash requirement will reduce the amount the Seller will likely receive by approximately forty percent (40%), and his chances of selling the business will be reduced to approximately ten percent (10%).  

The Buyer can find better options for the amount of down payment required. In addition, an all-cash requirement will not only potentially cause severe tax problems to the Seller in the year of the sale, but will also create multiple negative reactions in potential Buyers, among them being:  

• the Seller does not have confidence in the continuing success of the business;  

• the Seller does not believe in the Buyer's ability to operate the business;  

• the Seller feels that the industry as a whole is in trouble; and  

• the financial records produced by the Seller do not reveal the true condition of the business.