Many times, someone who acquires your business will leverage the business with some level of debt. The buyer acquires your company by pledging your business assets – and sometimes cash flow – as collateral against the loan.
It’s also common that sellers will take on some amount of alternative financing in a sale. Most sellers will finance around 20-30% of business value via some combination of traditional seller financing, earn outs, or an equity stake in the new organization.
Be aware that if the buyer runs into financial trouble down the road, you get paid after the bank. So, as you evaluate offers, consider the likelihood you’ll get paid. Due your due diligence and check a buyer’s track record. Ask to see their “source and use of funds” statement to determine how much equity they are bringing to the table.
Talk to us about how to protect your interests in a sale.