So you are ready to sell your small or mid-sized business and can’t wait to get that great big check in your hand. Let me show you how to make this check the biggest check of your life! How? Do your sale plans include seller financing as a part of the purchase price? Hardly. You would rather go to your dentist for a root canal!
If you are one of those business owners that want to sell your business but one that would rather discover the joys of a root canal over even considering the option of a seller carry or seller financing when selling a business, you’re not alone. In fact, you are in the majority, that is the majority of business owners who have not discovered its benefits to them.
I want to change your mind. My name is Scot Cockroft, and I am the founder and president of HBG Advisors, Inc., a business brokerage firm in Dallas, Texas. Our company has sold more businesses in Texas than anyone else. I have seen every type of business sold in every conceivable way to every conceivable buyer over every conceivable timeline with every conceivable result. Trust me when I say that seller carry (or seller financing, as we define it) is the most misunderstood factor in business sales. Most business owners don’t even want to discuss seller financing options when they first walk through our door, but when they get the facts on seller financing, they often change their minds. You might too.
What if you could get up to 30% more for your company through seller financing than with an all-cash business sale? Might that get you to set aside the the root canal analogies for a little while?
In this, and subsequent blog articles, I will share with you the secrets to getting active with a passive investment, and optimizing the return on investment for your business sale, while minimizing the fears and risks you may have in the process.
The fact of the matter is that seller financing is one of the best investments you will ever make at the crucial juncture of your business sale. After all, you’ve worked hard to get to this point – why not get the most out of this once-in-a-lifetime transaction?
Seller financing of one’s business is by far the greatest passive investment you will ever make. Tell me this: what other investments can you make that are tax deferred? Yes, you can max out your 401(k), but the maximum for the highest earners in 2016 is only $18,000. You can make a contribution to an IRA; as of 2016, the maximum a typical IRA can invest is $5,500-$6,500 (depending on whether it’s Roth or traditional) or, conservatively, 20% of your profit in a SEP IRA (simplified employee pension individual retirement account). Drilling down a little deeper at the IRA or 401(k) investment, what kinds of investments, exactly, are offered? You can invest money in a publicly traded company or fund, leaving your investment success to the whims of the general economy, decisions of corporate executives you now know (and might not trust if you did). You are someone who worked hard, relied on skill over luck, talent over market whims and ingenuity over lottery tickets, is this really appealing to you at this stage of your life? Now that you’ve earned the money, are you going to turn it over to the Bernie Madoffs of the world to “invest” the cash in a company that has hired a CEO and paid him MILLIONS to lose money? Yes, I realize this is a bold statement, but let’s really look into this claim to make sure I’m not just up here teetering on my soapbox.
What if instead you could make an investment that is equal to a “multiple of your yearly profit,” not a percentage of your profit? After all, you need to decide what to do with the proceeds of your business sale, whatever they are.
Fact is, there are pros and cons, good and bad, in continuing to invest in your own company’s success through seller financing of the purchase price. Yes, there are horror stories of deals gone awry, money, confidence and legacies lost BUT here’s the thing, that rarely happens if you do it right. A skilled Dallas business broker or business sale professional and a series of articles that will be forthcoming on this blog, will teach you how to do it right, leaving you free to sleep at night, rest easy, and, best of all, how to get 30% more for your business – in half the time. We are going to cover every nasty detail of seller financing, why I did it when I sold my business, and why a majority of successful business sales include some type of seller financing.
Scot Cockroft is the owner of Sigma Mergers & Acquisitions a Business Broker in Dallas Texas. We often prefer the term M&A or Merger and Acquisitions Dallas professional. But whatever you call it. We have been selling more businesses than anyone in Texas for over a decade. Stay to tune to learn about Seller financing when selling your business and many other topics.