By Bruce Pockrandt, CBI
Managing Broker, Truforte Business Group
When multiple buyers make offers on your business, it is natural to look first at the purchase price.
But the biggest number on the page isn’t necessarily the deal that puts the most money in your pocket—or has the greatest probability of closing.
When comparing offers, I encourage sellers to look at the entire deal structure.
Consider two hypothetical offers.
Buyer A offers $1.5 million but wants $500,000 in seller financing and another $250,000 tied to future performance.
Buyer B offers $1.4 million with $1.3 million available at closing and only $100,000 deferred.
Which is better?
There isn’t enough information to answer based solely on price.
The seller needs to understand how much is actually being received at closing and what conditions apply to the remainder.
Seller financing can be a useful tool for completing transactions.
But the seller needs to recognize what it means.
Instead of receiving all proceeds at closing, you effectively become a lender for part of the purchase price.
Questions include:
These issues should be reviewed with your attorney and financial advisors.
An earn-out makes part of the purchase price dependent on future performance.
Perhaps the buyer offers additional money if revenue reaches a certain level after closing.
That can increase the theoretical purchase price—but the seller needs to understand exactly what must happen to receive it.
If a large portion of your proceeds depends upon future performance after you no longer control the company, that is materially different from cash received at closing.
An attractive offer doesn’t mean much if the buyer cannot finance it.
Is the buyer paying cash?
Using SBA financing?
Obtaining conventional financing?
Raising outside equity?
Has the buyer spoken with a lender?
How much cash does the buyer have available?
An offer with a realistic financing plan may deserve different consideration from one based on assumptions that have not been tested.
Offers may contain contingencies involving:
The more uncertain the conditions, the more things that must go right before closing.
How long does the buyer want for due diligence?
What exactly is being reviewed?
When can the buyer terminate?
When does a deposit become non-refundable, if applicable?
A higher offer with a very broad escape route may not necessarily be stronger than a more straightforward offer from a well-qualified buyer.
One buyer may want two weeks of training.
Another may want you working in the company for a year.
One might request a consulting agreement.
Another might require an earn-out dependent upon your continued involvement.
Your time has value.
If your goal is retirement, a deal requiring extensive post-closing involvement may not fit your objectives even if the purchase price is higher.
This is one of the most important considerations.
An offer isn’t a sale.
A sale happens when the transaction closes.
I want sellers to consider not only:
“How much is this buyer offering?”
but also:
“How likely is this buyer to actually get to closing under these terms?”
Financial capability, experience, financing, contingencies, responsiveness and motivation can all matter.
I’m certainly not suggesting sellers ignore purchase price.
Price matters.
But it needs to be evaluated alongside timing, financing, contingencies, seller obligations and risk.
Sometimes a slightly lower offer with substantial cash at closing, fewer contingencies and strong financing can be more attractive to a seller than a larger headline number containing significant uncertainty.
Your attorney, CPA and other advisors should help you evaluate the legal, financial and tax consequences of competing structures.
Related reading: How to Sell a Business in Florida: A Step-by-Step Guide and how to sell your business in Florida.
No. Sellers should compare price together with cash at closing, financing, contingencies, seller financing, earn-outs, transition requirements and other material terms.
Not necessarily. Seller financing can help complete transactions, but it also means the seller continues to carry some financial risk after closing.
An earn-out makes some portion of the seller’s consideration dependent upon the business achieving specified post-closing results.
Because the financial capability and financing plan of the buyer can affect the probability that an accepted offer actually reaches closing.
Bruce Pockrandt, CBI, is Managing Broker of Truforte Business Group and works with Florida business owners through valuation, buyer qualification, negotiations, due diligence and closing.
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