Selling your business to your management team will commonly necessitate the use of a combination of commercial bank financing, seller financing, and alternative payments. This can be a complex process, but it can also provide the buyer the funding they need to complete the transaction and give the seller financial resources to provide for their life after business sale.. Here are some steps that you can follow to structure a business purchase using these financing options:
Determine the total purchase price: The first step is to determine the total amount of funding needed to complete the purchase. This should include the purchase price of the business , usually based upon a valuation of the business.
Secure commercial bank financing: The buyer should work with a commercial bank to negotiate financing for a portion of the purchase price. We see a range of two to 3 times EBITDA. The bank will typically require collateral, such as the business assets or real estate, and will also consider the buyer’s creditworthiness and ability to repay the loan. The terms of the loan, including interest rate and repayment period, will vary based on the bank’s requirements and the borrower’s financial situation.
Seller financing: Insales to management the seller is needed to provide financing for a portion of the purchase price. Seller financing typically involves the seller accepting a promissory note from the buyer for a portion of the purchase price, with repayment terms negotiated between the buyer and seller. This can be a good option for sellers when the SBA is involved in the commercial portion of the loan. .
Consider alternative payments: Alternative payments include the continuation of the selling business owners salary after they have “retired” from the business. They also can include the payment of health insurance premiums for the former owner and their spouse.
Work with legal and financial professionals: The process of structuring a business purchase using multiple financing options can be complex and requires careful consideration of legal and financial implications.Business owners should work with legal and financial professionals to ensure that the financing options they choose are structured in a way that minimizes risk and maximizes their chances of success.
Overall, structuring a business purchase using commercial bank financing, seller financing, and alternative payments can provide business owners with the resources they need to exit their business and retire comfortably. . By carefully considering the financing options available and working with legal and financial professionals, owners can structure the transaction in a way that works for them and the buyer.