Take Five #158: 5 ways SMB deals go sideways, and more
Top five must-reads this week in the world of SMB acquisitions and operations
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Take Five #158: 5 ways SMB deals go sideways, and more
1. 5 ways SMB deals go sideways
2. If you give up 10%, what you get back might be way more valuable than equity
3. “Key Terms to Negotiate in Seller Financing”
Seller financing is a common way to buy a business, especially for small businesses, where sellers provide loans directly to buyers. This approach simplifies approvals and reduces hurdles. Key terms to negotiate include:
Price and Down Payment: Typically, a 50% down payment is required, with the rest paid in installments. Businesses sold with seller financing often sell for 20-30% more due to the flexibility offered.
Interest Rates: Rates usually range from 6% to 8%. Strong credit history and experience can help buyers negotiate better terms.
Payment Structure: Options include fixed payments, interest-only periods, balloon payments, or deferred payments. Choose one that matches your cash flow.
Loan Length: Terms usually last 3-7 years. Ensure monthly payments don’t exceed 33% of your annual cash flow.
Default and Security Terms: Define what counts as a default and include measures like personal guarantees, collateral, and insurance requirements to protect both parties.
Proper legal documentation is essential, including a Purchase and Sale Agreement, Promissory Note, and Security Agreement. Sellers should also verify buyers’ creditworthiness and ensure compliance with regulations.
Read the rest of the Kumo post here.
4. Buyer recaps first year of ownership, lays out a couple struggles, some upsides, and progress made
5. Acquiring Minds Interview: “How 1 Couple Bought 2 Businesses”
The original plan was not that both wife Lindsay and husband Kevin would buy businesses.
At first, the idea was that buying a business would be the path Linsday Buckheit took out of corporate.
Recognizing that this goal would be a serious commitment, Kevin Black decided to ride along with his wife as support.
For a while, not much happened.
8 months came and went, they were both still working in W-2's, and progress was elusive.
That changed when they decided to work with a buy-side advisor group.
Not only did the search accelerate, their plans changed. Kevin too would end up with a business.
In addition to working with a buyside advisor, other key themes to listen for in today's interview are key man risk and how to structure a deal with a forgivable seller note to protect against declining revenues.
Find the Acquiring Minds article and podcast episode here.
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