The value of a business can be determined in a variety of ways and requires a thorough understanding not only of the actual business but also of the industry, competitors, as well as the current market. Like in residential real estate, in a buyers’ market there will be less competition for the buyer of a business which can drive down the multiple and overall sales price. On the other hand, in a sellers’ market owners may be able to increase the selling price. In addition, there are many other factors specific to each business that can impact price and demand. Regardless of the market, along with ensuring the business will go into the most capable hands, business owners will also want to attract a buyer who is willing to pay a fair asking price for their company. Unlike a real estate transaction, there are many creative ways to structure the sale of a business that can be achieved through a variety of solutions. A few of the more common structures include All Cash Deals, Seller Financing or Earn-outs.
All Cash Deals
An All Cash Deal is the most straight forward and the least risky to the seller. An all cash deal is where the total purchase price is paid to the seller upon the closing of the deal and nothing else is owed by the buyer. These types of deals can often occur when a larger company acquires a competitor and has the resources to pay the entire purchase price. All cash deals are more likely if the business in bankable. However, there are also cases where a seller may accept a lesser amount for an all cash deal since it is often the least complicated structure and allows the seller to walk away at the end without much further obligation. Because of reduced risk an all cash deal can be attractive to a seller and the simplicity of the deal may off set a reduced price given the alternative of a more drawn out structure that may include additional financing or delayed payment.