Major buyer finance factors to consider when selling a business - The Brokerage Connection

Major buyer finance factors to consider when selling a business

Buyer Finance Types

What type of buyer have you envisaged, after listing your property or business for sale?

Perhaps you have heard of other success stories. Family members, company acquisitions, investors, an employee purchasing other businesses. Whilst some sales go through smoothly, there are roadblocks or hurdles that must be overcome, before some settlements are made.

If you are successful in find a buyer, whilst you may be satisfied and are ready to make a swift transaction, there are other factors that will come into play before the deal can be fully finalised. Two of the major factors are Due Diligence & Finance. 

Due Diligence is where the buyer reviews available information to verify the state of the business before making an offer. This includes;
– ensuring that sales are as good as you say
– that employees will be happy with a new owner
– making sure that customers will remain loyal once they take over
– making sure the business systems are sound and documented
– checking that the cash flow sustainable.

They may ask questions such as;
– do you have to sell? If yes, are you under time pressure?
– is money the prime motivation for selling or is there some unrevealed reason, such as a competitor planning to open nearby?

They will take the following actions;
– research the business marketing and the main competitors
– assess the risks associated with the business’s future trading and with the industry as a whole
– will conduct secret shopper experiences, such as standing out of view outside and taking an estimate of the sales activity. They will visit the business at different times, both announced and unannounced
– analyse historical information and trends. Looking at sales growth, profit margins, overheads and working capital
– look to see if there is scope for improvement? What specific value can they add to the business based on their skills and experience
– work with their professional advisers to determine if the business is making a profit, if not they will try to uncover why

During the analysis of the business, they will also be considering how they will source funds to purchase a business.
In an ideal world, they will have funds prepared ready to make an offer. However, this is not always the case.

There are several types of buyer finance scenarios, which all come with time and administration delays. Here are various types of buyers, and how they can impact sellers.

– Finance from a lender: These types of buyers will need to secure a business loan and finance from banks and financial institutions. Criteria is getting tighter, which can impact the time frame. Banks will want to know about the business, including it’s plan, equipment, assets and property. They will also review the buyers ability as an individual to successfully run the business.
– Refinancing: Here the buyer may use money from an existing mortgage on their house or existing property, to purchase the business. This situation usually requires a large amount of paperwork, as the bank will want to review the business as well as the buyers ability to repay money to minimise the risk.
– Cash: The buyer may have been able to save the capital to purchase the business with cash/outright. This may only be achievable for smaller businesses, for businesses greater than $100,000 the buyer may need to look at alternate financing options.
– Vendor Finance: Vendor finance occurs when a seller agrees to fund (usually a part of) the purchase price to sell its business. An initial amount will be paid by the buyer at settlement, with the balance, plus interest, repaid over an agreed period
– Investor: An angel investor is usually a wealthy person who invests in a business during the initial stages.

Here are some problems that may arise for sellers;
– May have who wait weeks for the loan to come through
– the buyer may ultimately not get approval
– detailed coherent information on the business is required
– the value of your business may impact the type of finance the buyer has/can get
– will need to have a fool proof business plan, action plans, and a vision for the future.

If you will be selling your business in the future or have been considering it pays to speak to an expert right from the start. Our team of licensed professionals can guide both buyers and sellers through the sales process.

Speak to a member of our team today, by calling 1300 466 455.

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