3 Ways Seller Financing Can Rescue Your Acquisition Deal with Andrew Gazdecki and Ky Pratt

Foreign.

We are live. Welcome, everybody. Thanks so much for joining us. We'll get started in a minute, but before we do, we always like to do this. But feel free to say where you're from in the chat. I'm currently in San Mateo. Kai, where are you?

I'm in La Jolla, California. Down there in San Diego.

Right by the beach.

Right by the beach. Nothing to complain about. Oh, it's great. We got the sun, nice breeze.

Nice. All right, we got la. Go Dodgers. All right, London. Dana Point. I'm from San Clemente, so that's really close to my hometown. Dallas, South Africa. New York, Seattle. Ish. More New York. Montreal, Kenya. All right, we got a truly global crowd here. Dublin, Ireland. All right, Santa Monica.

Awesome.

Long Beach, Seattle, Oklahoma City. Kai, how excited are you for this webinar?

I'm pretty excited. I was in a webinar in July. Already got the call back, so I'm happy to be here. Yeah, yeah.

It's gonna be a fun one. All right, we'll get started in a minute. Orange County, California. Lots of California. I like it. We're both in California, me and Kai. All right, let's go ahead and get started. We are going to be taking Q A, so if you have any questions during this webinar, feel free to put those in the chat. We'll do our best to get to those at the end. And without further ado, let's. Let's get started. Can everybody see my screen? Okay. Oh, yeah. France here, too. All right. Okay, cool. All right, three ways seller financing can rescue your deal. A negotiation tool for achieving maximum purchase price. Here's a quick agenda. We're going to be doing introductions. We're going to be going over seller financing from a high level. So what is it? Why offer seller financing? How it works with some examples, I also have some potential acquisition opportunities as well from founders that are open to up to 50% seller financing. So I'll be going over those later in the the presentation. Without further ado. My name is Andrew Gazdecki. I am the CEO and founder of Acquire.com. i previously founded two other startups. One called Business Apps. It was a drag and drop mobile app builder. And then also Altcoin, which was a crypto exchange. Both those were acquired, which is why I started acquired.com to essentially make getting acquired easier for founders all across the world. And then below that are some awards from business apps, which was quite the ride. And with that, Kai, I'll pass it over to you.

Thanks, Andrew. I'm Kai, I'm on the acquisition success team here through our M and A advisory services. Some of you I may have worked with, even working with currently right now. So thank you for being here. I'm on the front lines here with our sellers and buyers and really my favorite thing about this job is helping people make logical decisions. And that's the main topic here is seller financing. It's a decision you have to make about the offers you're going to put forward or the offers you're going to accept, depending on which side you're on. So excited to talk to you guys all about it, answer any questions we might have towards the end of the webinar.

Right on. Thanks, kai. And then acquire.com, we are building the world's most founder friendly startup acquisition marketplace in the world. And in terms of our impact, we've been in business about four years now. We've helped over 2,000 startups get acquired. That has translated to about 500 million in closed transactions with half a million in registered buyers. We have thousands of listings on the marketplace today and we've served over a hundred different countries. So truly global marketplace. And now to the reason you guys came here. So what, what is seller financing From a high level. So when I first started acquirer.com, i had no idea what seller financing was. It was a new term, but it's actually a really common tool that a lot of buyers and sellers use to essentially close the gap with their acquisition. So what it works, you have the closing payment and then the seller note, you combine those two together, you have the total purchase price. So as an example, let's say you're looking to sell your business for a million dollars or you're looking to buy a business for a million dollars, but you don't have all the cash up front. So one way to close that gap is to issue what's called a seller's note. So this is where you're essentially using debt as a way to get to the million dollars by only putting a fraction of that down. So some scenarios could be total purchase price, million dollars, and the closing payment is 500,000. And then you have a seller note for 500,000 that's going to be spread out over three to four or five years, sometimes shorter, somet longer, and then you pay an installment, sometimes monthly payments, sometimes quarterly payments, sometimes yearly, sometimes a big balloon payment after a period of time that you agree with and then sometimes it has interest on that loan as well. So essentially the, the easiest way to think about this is you are essentially making a loan to the potential buyer that you're working with that they're going to pay you over a period of time instead of the full amount upfront. We'll go over the benefits of doing this, but the short version of that is it increases your buyer pool. It reduces the risk for potential buyers, and what this can do is potentially increase the maximum purchase price that you're able to sell your business at and again, reduce the risk so more buyers are interested in making an offer if you're not able to secure the full price that you're currently looking to get today. Kai, how'd I do on that?

I think that was a pretty good definition. Ready to dive into the details.

All right, so why. Why offer seller financing? And I'll pass this over to you, Kai.

Absolutely. So with seller financing, if we're thinking about listing our business or we're currently on the market for sale right now, we want to maximize our activation of this blue line called buyer interest. We want to be at the top right where a buyer is giving us our maximum interest. That's how we are the most competitive on the marketplace. So assessing this is a logical decision between how much risk is involved in my business and how affordable it is. Now, both of these are subjective, but seller financing is one of the elements that allows you to control the risk and control the affordability. If you find yourself as less affordable and high risk, you're probably going to be sitting on the marketplace for a long time, maybe even indefinitely, and not ever achieving your goals. So you always have to put yourself into buyer's shoes from time to time and say, how much risk is coming with my business and how affordable really is my business based upon what I'm asking for and the consistencies of the offers that I'm willing to accept.

I love that. I love the part of definitely put yourself in the buyer's shoes. The number one reason we see a lot of businesses not sell is just what you said, Kai. They're too expensive and they're too risky. And as a buyer, you're looking for a return on your investment. You're going to be balancing risk reward. So being able to understand, you know, how your business is being perceived by buyers is huge. All right, next slide. So seller financing can definitely lower the risk. So bridges pricing gaps to reduce financial risk, makes your business more attractive, creates goodwill with buyers. Business, not buyers, take risks. So just like with any asset that you're looking to purchase, the lower the price and the less risky it is. Perceived by buyers, the more that are going to be available and able to transact, Whether it's a business, it's a home, you name all kind of works along the same thought process. So if you're looking to increase the amount of buyers who are able to purchase your business, seller financing really can be a way to make it more attractive while also allowing you to still reach your goal of selling for whatever price it may be. Because you're creating an opportunity for buyers to still purchase your business, but with less cash down, allowing them to use cash flow from the business to make payments on the purchase price, which you both agree upon. And again, creates good will with buyers. So you're sharing in some of the risks. You're saying, you know, I have confidence my business is a good acquisition. I'm okay not having 100% cash at closing. And then also you are bearing some of the risk with the business and not the buyer, assuming 100 of the risk by putting 100 of the cash at closing. So another way to think about this is, you know, it helps you get a deal done with buyers. And as a buyer, this can be a great way for you to also acquire business where you do not have a million dollars on hand today, but you can still make offers to business owners where maybe you can structure an attractive offer. So it's a win win for both of you. Maybe this seller, I'll keep using the million dollar example. Maybe they're looking for a million dollars. You don't have a million dollars as a buyer, but you're able to put down half of that and have proceeds from the business pay off the other half. And during that time period, maybe you can grow the business, maybe optimize it, and again, create that win win for everybody involved. And with that, I'll hand it back over to you, Kai.

Thank you, Andrew. So, in terms of the affordability barometer, we need to think of some of the things that could potentially hold up a deal that buyers look at to enable themselves to even purchase a company. The first point here is with seller financing, there's no need for external financing such as a loan. If anyone's ever gone down the path of getting a business loan, whether it be SBA or any sort of other lender, you know that that process extends the timeline, can be excruciatingly detailed in terms of the documents and qualifications that you need, and introduces a new element to the deal that could potentially ruin the deal for you if the loan doesn't hold up or it changes the structure of the deal. So that's a really big one in terms of just a deal that I'm working on currently. We unfortunately had one of the lenders involved back out of the deal, but the buyer and the seller had that goodwill that Andrew referred to to allow them to work out a seller finance deal to get the deal back on track. And that goodwill really led the way there to where they are now no longer dependent and relying on that lender to finish the deal for them. The second bullet here, no need to liquidate invested assets. When it comes to purchasing a business, from a buyer's perspective, it's do I have the money or how am I going to get the money? If I don't have to liquidate any assets, then I now have a alternative path that is reasonable and achievable. Whereas needing to liquidate assets really depends on is it the right time to. You could liquidate assets at any time if you have them, but the market kind of dictates what they're going to be worth and what your return on liquidation would be. To the last point, we think about back to the shoes of the buyer. And Andrew, maybe you can speak to this after my point here. But no buyer wants to buy a business and just have it continue what it's been doing at a steady line. Every buyer wants to buy a business and have that as a baseline and then help it grow so they can get their return more expedited. In order to do that, the buyer will have to inject capital into the business, whether to activate sales, whether to activate marketing. And so with seller financing, that gives a period of time where the buyer can exactly do this to then make sure that the business is going to succeed. So again, win win scenario that allows the buyer to achieve their return on investment and also allows you to be confident that your business is going to carry on its legacy.

I love that point. I completely agree. And as a seller too, I think that aligns with your goals. Where you do want to sell your business to a person who's going to ideally take it farther than you could on your own, so they don't drive into the ground or anything like that. So leaving a little bit of, let's say, gas in the tank for the new buyer to play with, where they can learn what worked with you, what didn't, what have you tried in the past, marketing wise, and they can revest some of that capital to grow the business further and again, take it a little bit farther than maybe you did as the original owner. And that definitely will get buyers excited and allow you to close the deal. I think this is probably the big one. Increases your buyer pool, so maximizes interest and attracts more offers. When you're able to have a bigger buyer pool, you're able to simply meet more buyers. And that will allow you to meet a lot of different types of buyers where maybe one has a really good idea to grow the business farther. Or you really align in a way to integrate your product or service into their existing business. But you're able to talk to more buyers, so you're able to, ideally, like the first point here, find the right buyer. Whatever your goals might be, maybe seeing your business go to new heights is the most important factor to you. And being able to speak to more buyers is going to allow you to potentially find the best buyer that fits that profile in terms of the actual price that you sell to that you sell for. Definitely by offering seller financing, you could be able to reach that. The only downside is you may not see that amount 100% on closing day. But if your goal is to see a million dollar purchase price, you want to sell your business for that amount and you aren't seeing offers at all. Cash on closing in that amount. Offering seller financing could be a way to attract those types of offers from buyers. It would just be extended out 24 months, 36 months or 48 months, whatever you negotiate with the potential buyer. So it could actually result in a higher purchase price. Maybe you have the ability to offer buyers $1 million where it's all cash at closing. And if a buyer wants to come in at 1.2 or 1.3, a different deal structure, you would be open to a higher purchase price if seller financing is used because you are going to be delaying those payments over two, three, four years. And then I think also the last point is definitely true. May result in friendlier terms overall. Again, by working with a number of different buyers, you're able to really hone in on the terms and the valuation that is made most important to you and really ensure that you get the, the deal that makes the most sense for you. And then now we're going to move into, okay, you're sold on seller financing. How can you actually make this work for your acquisition? Kai, I'm going to hand it over to you. Let's go for step one of seller financing. Tell me how it works.

Yeah, absolutely. And maybe this is going to answer some of the questions that are coming in right now. Just to get Ignacio's question out of the way, here is a seller Note, depending on reaching certain KPIs or just a simple note, what we're talking about today is just a simple note. So you can think of it more so as a deferred payment paid out to you over time. Where Ignacio, what you're referring to would be more of a conditional holdback or a milestone earn out. So again, seller financing, just a deferred payment. So what comes with that from the seller's perspective? A question I often get is how does it work and what are the risks involved? Like, how am I going to get my money? So that's what we're going to talk about today. So the first step to really getting into seller financing is talking about it. You have to understand what your net proceeds are, what the timeline is to get your proceeds, and how that allows you to achieve your exit goals. Everyone's exit goals are different. And a lot of the times I'm posed with the question of Kai, is this offer a good offer? And my response is something along the lines of how does this help you achieve your goals that you set out to gain? And that usually leads to the yes or no answer that we're looking for. So subsequent question, how much cash do you need? Are you looking to make a down payment on a house? Are you expecting a child, addition to the family, and so you actually need that money quickly? Are you looking to pay off a loan with your exit? That's where you may need a certain amount of cash down to equate to your offer structure to make it good or unfavorable. And then that third point is one of the biggest points. You do want to make sure that there is a pathway to this amount getting paid to you and often it is through the business. So having the conversation with the buyer who is proposing seller financing about their skills, their abilities as an operator, their business plan, if they were to be the new owner of your business is really important. And maybe in between the lines here, if your seller financing timeline is 6 to 12 months, try to align your transitionary period with that timeline. So you're in the loop, you're involved in the business.

Okay, step two, Evaluate buyer's ability to repay. So I think there's some good questions in the chat and I'm going to take one as as well, Kai, because I like this one. So this may be a really obvious question, but with seller financing, does the buyer have to pay back the loan regardless of what happens to the business? The answer to that question is is usually yes. You can work in some terms where maybe it starts to look more like an earn out where if the business declines, the buyer doesn't have to pay. But generally, yes, you were making a loan of the business based on the performance of it when you sell at closing. So you're really going to want to do due diligence on the buyer. You're going to want, like Kai was mentioning, you want to be on good terms with this individual. You want to be confident in their skill set. You want to make sure that there's an actual feasible path to paying back this seller note. And what I mean by that is if the seller note is a hundred thousand over twelve months, so it's roughly 8,9000 dollars a month and the business is only cash flowing, five thousand a month, there's a four thousand dollar gap in that and that's probably not going to work. And so you want to be aware of things like that. But on top of that, what does their credit history look like? Do they have cash on hand? Do they have a history of making bad financial decisions? Do they have a history of success? I think this one is probably one of the most important. For example, if you're selling to someone that has been a VP of marketing, a VP of sales and they have a huge successful track record of growing SaaS companies, I'm going to be pretty confident that they're going to be able to grow the business and therefore the seller note is going to be, it's going to be very feasible for them to repay that note. And then lastly on this slide, are they the best fit for your business? Again, do you have confidence in the plan that they have post acquisition? These are all things that you should talk about with the potential buyer. And as a buyer you should be prepared to answer these questions as well. What is your plan? How have you grown SaaS companies like this? Where do you see potential issues coming in? Again, the more comfortable both the buyer and the sellers are, in my experience, the better that these agreements work out. All right, back to you Kai.

Thanks Andrew. So what happens in seller financing really depends on all these pre checks that you can do. In previous conversations we all talk about confidence of close with an offer. What is your confidence that this is going to make it to the finish line and you are also going to get the dollars that are within that structure. So the question here, which may align with your question crystal is what is the repayment schedule? This is negotiable, but you could imagine that a quicker payment schedule is more favorable to a seller, whereas a longer payment schedule you then Start introducing the risk and the implication of time. Dollars have different values in the future, but in terms of just a range, I would say anything from the range of six months, maybe at maximum and depends on the percentage maximum. Five years on a repayment schedule really depends on what you negotiate with this buyer and what is the percentage cash on close. What is the payment structure within that schedule? Not just length of time. You could be paid in a balloon payment, you could be paid monthly, you could be paid quarterly. You could even have lump sum milestones along the way. So a lot of it depends within that. But hopefully logically that makes sense that a quicker timeline is more favorable to you getting your money. But with that, if the timeline is longer, we see the second point of how much interest will you charge? So while not officially a bank, the seller in this situation is functioning as the bank saying, hey, I'm going to allow you to buy my business. You only have to pay this much up front and then you will repay me back over a period of time. So you can negotiate an interest rate. Now just say generally on principle, if the timeline is longer, your interest rate could be higher. But it has to be something that you and the buyer agree upon, otherwise the deal is not going to go through. To our last point here, what happens in the case of default? Plan ahead of time, do your pre checks ahead of time. So to the previous slide, we talk about credit history. In your conversations with buyers, ask for a reference. Have you done seller financing before? Are you currently involved in a seller finance deal that still needs to be paid off? Can I speak to one of the former sellers that you have enacted the seller finance deal with and you start gaining this confidence, you start gaining this goodwill to where you're trying to avoid the situation of a default. But if there is a default, talk about it with the buyer ahead of time. In the case of a missed payment, what is the path of recourse? In some situations it is a path to repossessing the assets. But again, talk about it ahead of time and never assume is when you assume, it just gets more risky and you can get in a lot of trouble there.

100%. So now I'm going to go over some live deals offering seller financing. So let me pull these up. So these are potential deals that you can reach out to where we've already reached out to the founders. They have expressed some interest in at least hearing out potential offers within this range. And we'll be putting these in the chat as well. So the first one, we have a turnkey local SEO agency with 50,000 in monthly recurring revenue. Asking price is about a half million dollars. This is definitely a good business. If you're looking for an agency, a social platform for entrepreneurs to list businesses, find co founders and connect with investors. A simple online trivia platform for pubs, schools and any event that requires audience engagement. Asking price on this is 105,000 multiple 4.4 times profit profit margin on this looks, looks great. AI powered product photography tool for businesses to generate, edit and design product images. Asking price 600,017 times profit or 1.7 times revenue. Australian based staffing platform as a service this is one of the larger transactions of this group. SaaS startup comprehensive platform for indie game developers spanning ideation to launch. Asking price 121,000. So as you can see there's a very, there's a wide range of business types from agencies to marketplaces to SaaS businesses and the six figures all the way up to high six figures, seven figures. So definitely check these out. There's definitely a lot of entrepreneurs, business owners, startup founders that are looking to sell and they are open to creative deal structures that bridges the gap and creates a win win situation for everyone involved. And so with that I know we had a lot of questions so we're, we're going to do our best to, to get to all these. So let me pull up the list of questions that I've been gathering and we'll get over to those. Okay Kyle, take the first question and I'll give you the second. That sound good?

Sounds good.

Okay, first question and if you have more questions, feel free to put them in the chat. We'll do do our best to get to those. But at the top, what terms of a seller financing agreement are typically negotiated beyond just the amount? So that's a really good one. There's quite a bit. There's, you know, the interest rate there is the reschedule payment, there is the length of the seller financing note. Is it monthly, is it yearly prepayment schedules or excuse me, penalties? Is there a balloon payment? Meaning can you have a large payment after the end of one year or two years? But the main items are going to be the length. Are you going to have the seller note over 1, 2, 3, 4, 5 years? What is the frequency of the payments? Is it monthly or quarterly? And then is there an interest rate? Is it 5, 6, 7, 8? But those are, those are the main three. And then moving on to the next question. In what way is seller financing different to other conditions like holdbacks and Earn outs.

Hi.

That's all you.

Yeah, happy to take this one. As mentioned before, it's the lack of conditional statements with the seller financing. Consider this a deferred payment over a period of time that in some aspects is guaranteed to you as long as everything upholds. Whereas the holdback, the earn outs there is a milestone achievement. When it comes to all three of these things, I think there's a stigma around them, that it's a negative thing to have in an offer. And I want to just say that it's not. It's very common. If you look at a lot of data, there's always some variation, some mixture of cash on close and then a creative deal structure. What it really comes down to is the percentage distribution and the feasibility behind getting your payment through seller finance Note or in the case of earnouts, the reasonability and the achievability of those milestones. So it is common. It's all about distribution. You can, you can think about it. If someone were to give you 10% down and 90% seller finance, that's probably not a good deal. But if you start having an idea in your head as a seller of what would you be open to, you need to start getting that out into the conversation because you could be deterring people away by not being willing to talk about that.

I like that. All right, next question. How do I decide how much interest to charge for seller financing? Is interest free an option? And if so, is it recommended? That's, that's a good question. I would say yes. You can charge zero interest if you wanted to. But keep in mind, as a seller, you're essentially not being compensated for the loan that you're issuing. You can argue that the deal is closing, but typically I would recommend some interest rate on it, whether that's between 5 or 10% more or less. But typically you'll negotiate the interest rate based on where are they in the broader market? Are they really high? Are we in a zero interest rate environment? What is the cost of capital that you're essentially loaning out to the, the potential buyer? So 5 to 10% today would be reasonable. And then, yeah, you can have zero interest rate. So if you're on really good terms with the buyer and you're comfortable with that as a seller, you can definitely do that, but it is less common. More common that we see is seller notes with some interest attached to it.

And one thing to add to that, Andrew, I know James, who can be here today with be appreciative of this is with each seller Finance structure. Depending on where you're from, talk to your financial professional within your sphere about the implications of certain interest rates and how that money is going to be taxed. Because it all can be differently. There's different rules everywhere. So have those conversations early as you get your offers.

Yeah. Agreed. Agreed. 100. All right, Kai, let's. So how do I select? You want me reading? Go ahead.

Go ahead.

All right, sorry. How do I select or add seller financing to my listing?

So I think the best place in the listing is probably within the asking price reasoning section. If you want to be up and open with it, you can have it there. Start with your differentiators of why your business is valuable. But then you can put something as simple as am flexible. Am open to creative deal structures. Just as the door being cracked open, if not directly on your listing, have it in your early conversations. I think it's the elephant in the room. And buyer seller meetings, especially with first time sellers, first time buyers is not talking directly about valuation and deal structures. You want to have those topics within your meeting so you're all on the same page. And those clear expectations can maintain through the course of an exit from start to close 100%.

So there's a question in the chat. I'll just skip to it. As a buyer, how do you protect against degradation of business post close? So seller financing will not protect against that. What you're going to want to do to protect against the business, essentially declining post close is strict due diligence. Do your homework before you actually buy the business. You could negotiate an earnout agreement if you're concerned. So what that would mean is 50% down and maybe 50% is held back based on the performance of the business after you close. But seller financing wouldn't apply or protect you against the business declining post close. What it what it would do is it would allow you again to put less business down up front. So maybe you have a period of time where you can improve the business if something unfortunately happened and decline post close. Okay, what question should I ask a buyer who's requested seller financing before saying yes? Good question. So we went over a number of those. But your goal as a seller is to do due diligence on the buyer. Do they seem to be knowledgeable in your type of business? Are you confident that this individual can grow your business farther than you were able to on your own? Do you see any issues? So asking questions of Kai has some great ones. Are they currently involved in any other transactions where there is seller financing? Do they Have a plan post closing to grow the business. Making sure that you also fully understand how the seller note is going to work, I think is extremely important. But just key questions to understand the buyer and their ability to repay, their ability to grow the business so it makes it easier to repay. And then I think the general structure of the seller note is. Is what I recommend initially. All right, Kai, this one's you. How much of the purchase price is typically offered under seller financing?

That's a good one, A great one. A great one. It is negotiable, I would say, as a bar, probably want 50% cash on close as a low bar, and if anything, higher. If you're a buyer, you certainly have purchase power if you can rise that up. So all cash deals, of course, are very favorable, but they're less likely, especially as deal sizes get bigger. That needs to be an accepted truth. So 50% or more cash on close is kind of the bar. But in some situations, if someone's offering you less, maybe they have intangible factors like they're just the perfect operator for the job and this puts them in a position to grow the business. The payout structure is very favorable to where you're getting your money in a reasonable amount of time. So don't hold that completely in stone. There are some other factors in this within the quality of the buyer that can maybe allow that to be a little bit less.

Okay, next question. This is an important one. What happens if the buyer defaults or falls below behind with repayments? So the big ones there are. In most scenarios, you can repossess the assets, depending on how the seller note is worded and how you term that. But you can actually repossess the business if they default on their payments and they're no longer adhering to the agreement. Also legal action as well, you can apply legal pressure because you do have a legal agreement that they are to be making these monthly payments or quarterly payments because they bought the business from you. So you do have that as an option. Other things you can add in late fees. You could have the ability to accelerate the clause as well. So there's terms that you can add in to protect you in these scenarios. But the big ones are you can take legal action to be awarded the amount that they owe you or even repossess the asset which you sold them. Another great question. All right. Is a promissory note made out against the company I'm selling or is the buyer or their business entity, are there advantages of one over the other? You want to grab that one, yeah, absolutely, absolutely.

So it's going to be made out against the buyer, not your business. And what I mean by that is the buyer is probably going to put the note against the business that they're now acquiring and their assets there, but they would not put it directly against them in most cases as a personal guarantee. You think about the advantages or the disadvantages. Certainly to a seller it's advantageous if they are willing to put a personal guarantee there, but not everyone will be comfortable with doing that. So it all kind of comes down to again, these pre checks. Right. Are they already paying off a loan? Is there logical thought to say that this is going to default? You never really want to activate these recourse pathways because that can be taxing emotionally and time wise anyways. But most buyers are not going to say, yes, I'm going to assign a promissory note against myself as a personal guarantee. Have you had any experience with that, Andrew, in terms of buyers willing to do that?

Not. Not commonly, no.

Yeah, I think in that case we talk about the risk spectrum. That type of agreement just increases the risk on the buyer end and every deal has to be shared risk somewhere in the middle.

I agree with that. The best transactions are win win, you know, for both buyers and sellers. Okay, next questions. I'm getting all these, the harder ones. Okay. Under, I mean the, the ones that protect sellers at least. Okay. Under what circumstances should you never offer seller financing even if the buyer is a good quote credit risk? You know, great questions. These are really like you shouldn't always offer seller financing and there's, there's definitely risk to offering them. Again, you're issuing a loan, someone could end up not paying the loan and that would cause a bunch of headaches. In scenarios where I would not recommend seller financing is, you know, do you have any information on the buyer that is extremely negative? Kai had a great suggestion where you get a referral, a reference. If that reference comes back really bad and they had a terrible experience with the buyer, that would make me want to not work with that potential buyer and definitely not have a seller note over a period of time which they, they owe capital back for acquiring the business. If they have no experience in a specific industry, let's say they're, you know, an e commerce expert and you have a, a very heavy developer centric SaaS business in the AI space that's kind of cutting edge or something like that. I wouldn't issue seller financing for that because they're just not, it's going to be Harder for that individual to run the business? It can work out, sure. But I would ideally like to find a buyer that understood the nuances of the developer tools that you made. And this is a wild example. Maybe you know, the business is declining, maybe the business isn't profitable, so there's not a clear pathway for them to extract money from the business and repay the seller financing note with cash flow from the business. Those would be the main ones. Is. Is a person dishonest in any way? Can you find that out with a Google search or reference checks or just through your conversations? Two, do they lack the experience needed to grow the business? Is there, is there nothing that gets you excited about this potential buyer taking over, growing the business further? And then third would just be, is it not feasible for your business? Is it not profitable enough? Is it declining? Is it not stable? To where you can say, I'm confident that this business can generate X amount to be repaid back to me over, you know, 12, 24 months, whatever you and the buyer were discussing. Great questions. These are important.

Yeah, we got a really good question here in the chat from VIPRA that I'll take. If we offer 80% cash on close, that would include 60% from a bank and 10% from the buyer upon closing. Hold on. Chat, chat moved on me. And the buyer doesn't have all that money available and there's 20% to seller financing. Is that possible? So it is possible. It looks like here, this is an SBA scenario in the second message. What's going to happen when you have a mixture of sources of funding is the lender is usually going to take priority. So along the road, that rigorous process that SBA has does put you in a good position to say that. I've gone through these approvals to where it's rarely going to default. That's helpful to a seller to say, I believe in this. But then in terms of the seller financing component, while I am not a lender specifically, I believe the lender has to take first position, so that loan needs to be paid back to them prior to other people being paid back. So sometimes they can control the deal structure that lender, depending on the type of lender that they are. So is it possible? Yes, with some caveats, that depending on the lender, they can control the deal structure and the payout structure a little bit. Nice.

Great answer. That is true. Most, most lenders will ask for priority in getting paid back. So that is, that is a huge point to know. All right, Kai, at what point in negotiation should I say I'm open to seller financing.

Okay, so this is all about showing your cards and what you're open to. Personally, I think it's good to have the conversation early. Now, with that being said, you want to pair this with running a smooth process. If you communicate effectively to the buyers in your pool and you run them through equal opportunity timelines, you will get your offers coming in all within the same window. You can certainly let buyers know that you are open to seller financing. But should a large percentage cash deal come forward, that may take priority. So you want to put the buyer in a position that they know what matters to you, they know what you're open to, and they also know that it's not a done deal. You never want that buyer to be the only buyer. You want them to know that respectfully, you're running a process. So I think it's good to have those conversations out in the open because if you don't, you may be losing out on buyers. And at the end of the day, you came to sell and you want to know what your options are to decide between. What do you think about that, Andrew?

I love that advice. I think the main thing to understand is if you say you're open to seller financing, you're not saying you're not open to all cash at closing. I think that's a common misconception is if I say I'm open to seller financing, that excludes potentially better offers that I may receive. And that's not the case. If anything, it could be a way for buyers to win the deal if there's multiple buyers that are interested in. So I, I completely agree with how you're positioning that, Kai. All right. Are there any circumstances where I'd offer over 50% seller financing? Yes, there is. A lot of entrepreneurs don't know this, but not every business gets a ton of offers and has a lot of buyers flocking to buy the business. If you find yourself in this scenario, that's a good one to maybe make things more attractive to buyers. And when you're not getting offers and buyers are giving you feedback that maybe you're pricing too high, the opportunity is too risky, take in that feedback if you want to sell your business. And by offering seller financing, you'll widen the buyer pool and actually get a closed transaction on your hands. Another reason to offer seller financing could be if you're looking to sell for a purchase price that is outside of what most buyers are willing to pay up front. So it can help you reach your goals of just Getting acquired or selling at a specific price that aligns with your goals. But typically if it's 50% above that is when you're just not seeing a lot of traction with buyers. You need to make the opportunity more attractive and do what you can to close the gap. And seller financing can be one of the best ways to do that with buyers. All right, guy, here's another. You're getting all the good negotiation ones. All right. How do I politely turn down a buyer's request for seller financing?

I'm getting all the human interaction questions.

Yeah, this is good.

It's right up my alley in terms of my philosophy of life. You know, when it comes to this, only one person is going to be able to buy the business. At the end of the day, you can't choose multiple buyers. So you want to communicate within a timeline. Right. You get your offer, you need some time to review it with your advisor, with your legal team, with your family. But then you want to communicate back to the seller, excuse me, to the buyer with a decision. That decision either being yes, no, or maybe some sort of slight counter. You have to just politely communicate. Right. Thank you for your offer. At this time, I believe we have better offers coming forward. Should anything change and you still be interested. I'd love to resume the conversation, but the last thing you want to do is not communicate and leave them in limbo. That's just going to set a bad tone. And Andrew, you could speak to this. The buying and selling community is just so tight knit. We think about some of the checks that we're telling you to do here in terms of ask for references. You want to be a good reference as a seller and as a buyer. So conduct yourself appropriately. It can go a long way and it really is an X factor in this whole journey of buying and selling is how do you conduct yourself as a seller and as a buyer? Because if professional and communicative, you could sometimes win the deal on those intangibles alone.

Yeah. 100. We always say around here, you can't do a good deal with a bad person. So meaning maintaining integrity, just being polite to everybody is just good business. Not just when you're selling your business, but in life in general. So, 100 agree. All right, Kai, you want to take this last one and then we'll wrap it up here?

Absolutely. I see a couple questions in the chat. Happy to reach out to some of you guys and answer them. Some of them a little bit more complex, need to dive into, but happy to take this last one. The Buyer wants an earn out and seller financing. Should I say yes? And the answer here, I want a follow up question is what are the specs, right? Is it 80% cash on close, 10% seller financing and 10% earn out on top of that, what is the valuation? We think about your asking price and how that fluctuates with deal consistency to some degree. The lower the valuation, the more likely an all cash offer is going to happen. And the higher the valuation, the more likely a more creative deal structure complexity is going to happen. So if this earn out plus seller financing plus cash on close allows the valuation to reach a somewhat respectable or high, higher multiple, then maybe that's something you want to be a part of. The upside in. If it's bringing the valuation down and there's an earn out and there's seller financing mixed in, then probably you want to say no. Because there's that, there's that inverse relationship between the components here.

I like that 100%. I think it just, it comes down to what is the number you know, is there? Is the asking price really high over what you were looking for or the other offers that you're seeing? Do you have confidence in your business's performance after you close? Because on an earn out, you know it's tied to the business's performance on seller financing, it's tied to your relationship with the buyer and do you feel that they're able to make those repayments? So you are adding additional complexity. Another way to think about that is, you know you're taking on more risk. So what are you getting in return? Are you getting a larger purchase price? Is it the only offer? Is it substantially better than the other ones that you have in hand? So great, great response, guy. All right, well to close this out, if you are looking to get acquired and you want to maximize your purchase price and get the best terms for your business, definitely reach out to us. This is all that we do. Kai has definitely helped a number of businesses exit. So we'd love to help, we'd love to chat with you. So thanks again everybody for joining in. I hope you enjoyed it and if you had any questions and we didn't get to them, make sure to check out the replay where we'll publish that and answer those on our blog. So thanks everyone. Hope you have a great rest of your week.

Thanks for attending everyone.

See you.