Business brokers are seeing a lot of change happening in relation to the structure of the deals that sellers are accepting. I believe business owners are becoming more accepting of the fact that traditional business lending is more difficult to obtain than previous years and as a result we are seeing sellers accepting deals that a few years ago would be have been unheard of.
What kind of deals are sellers accepting?
Earn Outs! What are they?
Basically, this is a condition where the buyer pays for a portion of the business upfront and the seller remains in the business for period of time to assist with the transition and help the business achieve set KPIs. Once these KPIs are met, the seller receives additional payments that were part of the original purchase price. I am presenting more offers like this than ever before. Historically, this type of offer has been more relevant in larger transactions however more recently this has become common with much smaller businesses also. This type of deal provides the buyer with a greater level of confidence that the business will remain profitable and meet set targets.
Vendor Finance! What does this mean?
Vendor Finance is becoming increasingly common. Many years ago, most sellers would have simply said no to this type of offer to purchase the business however over the last twelve months I have presented several of these types of offers. Vendor finance often involves a small portion of the purchase price being paid upfront with the balance being paid off over a period of time after settlement. Basically, the seller is funding the purchase for the buyer and accepting payment over a longer term. Interest can sometimes be charged on this and there needs to be a clause inserted into the contract about what may happen if the buyer defaults on payment.
It is always critical for both buyers and sellers to obtain appropriate legal advice on all aspects of a sale particularly when there is an earn out or vendor finance involved. From my experience, it is essential that all parties thoroughly understand what will happen if targets or payments are not met.
Call us for more information!
If you are thinking of selling your business, I can talk you through some sale scenarios that you may need to anticipate in the current market. Call me on 0432 455 183 to discuss.