How to Convince the Seller to Carry Back a Note?
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I am in the process of negotiating to buy a business directly from the seller. The seller is absolutely refusing to carry back a note. I have explained to him that most deals are done this way, but he says he is seeking an all-cash sale, and has priced the business accordingly. In my research, valuations for this type of business are usually about 2.5 times the seller cash flow and his price is $270,000 (the SDCF is $100k). Should I offer to pay more in order to get a carry-back? I'm not sure I can get the business financed otherwise.
This is a great question and I truly admire your thought process in potentially offering more to get the terms you need - excellent strategy. The first step however is to determine that the seller has truly priced it accordingly for an all cash deal.
While there are no hard rules, generally speaking an all cash deal will usually translate into a 15 - 25% discount off the asking price when seller financing is being offered. As such, if your 2.5 multiple is correct, this would mean a $250,000 price. As such, he hasn't priced it accordingly at all. Unless there are extenuating circumstances that you have not revealed, you should look to pay around $200,000 for an all cash transaction.
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Richard Parker author of: How To Buy A Good Business At A Great Price(TM), the most widely used reference resource and strategy guide for buying a business. He has purchased ten businesses in his career and has helped thousands of prospective buyers worldwide learn how to buy the right business for sale. He is also founder and President of Diomo Corporation - The Business Buyer Resource Center. Richard Parker is also the author of BizQuest's Business for Sale Blog |