Recently a prospective business-for-sale buyer said this to me:  “I am worried that this business will not perform and then I will have made a bad investment.  I guess I will then just quit paying the owner.”

Seller’s beware:  When you are selling a business have these rules:

1)  Know the qualifications of any buyer who proposes to have you finance the business for sale.   In many transactions, it is the seller who is financing a bulk of the sale price.  Before you, the seller, agree to the offer make certain the buyer is presenting their credit report and net worth worthy of your financing them and know they have the ability to run the business.  If you do not have this in advance, have in the offer the ability to look carefully at the buyer and an exit from the offer if they do not.

2)  Ensure that in the offer it states that a personal guaranty will be part of the final, closing documents, a personal guaranty that if the business can not support the payments to you that the buyer will through their personal wealth.

3)  If you can not be certain of 1 and 2 above, the seller should insist of outside financing or sell for cash.  The seller can mitigate uncertainty by having a reduced financed amount.

While adding these cautions for the seller, it is important to know that seller financing is a norm.  The more flexibility the seller has in this the greater the number of qualified buyers come to the table and the more likely the seller will get their price in the sale.

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