Buyer Articles

Seller Carry. Why We Should Avoid It When We Buy Business in NYC

“Seller carry” is a legitimate way to secure a business purchase in certain scenarios. It basically consists of the financing made by the selling party of a portion of the sale over an extended period.

This might be a reasonable course of action in the event that:

* The buyer doesn’t have all the funds available
* The bank won’t lend the remaining amount
* The seller, nonetheless, still wants to go ahead with the sale

Notwithstanding, there is a lingering temptation on the part of investors to keep sellers on a leash via a _seller carry note_ that could function as an additional “warranty” of sorts, beyond whatever other warranties found in the Asset Purchase Agreement (APA in short). If a seller agrees to the issuance of this seller carry note, the buyer is thus reassured that the former will not try to “cut and run” when serious problems arise.

There is nothing wrong with exercising a bit of caution, particularly when you buy a business in New York City (of all places). Alas, this fear can get a bit too far and we can end up pushing away a good seller for no discernible reason.

It should not surprise us that putting such a burden on the seller is not appreciated, especially whenever the buyer has all the means to pay the required amount. When we push it too far, asking for a seller carry can become a giant deal-breaker. For this reason, business brokers advise against opting for this route save for special circumstances.

Bank Financing to Buy a Business New York City

If you decide to buy a business (NYC and elsewhere), banks actually _do _finance a large sum of the investment price, contrary to what many would believe. Most often than not, this financing represents a whopping 90% of the asset’s value, which is the maximum percentage guaranteed by the US government-backed SBA (Small Business Administration).

Unless you genuinely have a bad credit score – in which case, you’re not eligible to buy a business in New York City in the first place – getting credit for a sizable portion of a small business’ purchase price should not be overly difficult. A competent business brokerage firm can offer assistance in this regard and direct you to highly affordable and reliable lenders.

Situations could arise, however, in which investors don’t have the remaining 10% or they need to fill a 5% gap, in which case, seller carry notes are a good alternative. Be advised that seller carry notes should not wholly _replace_ the loan but rather serve as a means to mend the fence when available funds are not enough.

The only reasons you’d want the seller to assume an exceedingly high percentage of your purchase in lieu of a bank is because:

* As said earlier, you don’t trust him/her; or
* You’re not actually a suitable buyer under the criteria set out by virtually every professional business broker, to begin with, if only because you’re not in good standing with financial institutions

Either way, the seller’s confidence in you wanes and he/she might even feel offended by the proposal. It’s one thing to abide by the “settled accounts keep old friends” motto, and another one to go the extra mile and call good faith into question beyond necessary.

Should A Business Be Sold After Its Most Profitable Year?

What goes up eventually goes down, even if just momentarily. In the stock market, the saying goes “buy low, sell high”. This could likewise apply to business selling but in a more concrete way.

Unless you’re planning to keep your Long Island venture for the long term, you may want to sell your business whenever you’re able to get the highest business valuation. Long Island business brokers would point to your most profitable year as possibly _THE__BEST _moment to sell.

WHAT ATTRACTS BUYERS TO A BUSINESS?

It’s very important to understand the psychology of a potential buyer. Most investors aim to have money work for them and not vice versa. They would most likely opt for a company that has an already established brand with a loyal customer base and a stable recurring income. The mere idea of having to start a marketing plan from scratch or organize entire departments will probably scare most of them off from the start.

A thriving business, a leader in its respective industry with a renowned and verifiable trajectory, will undoubtedly turn more heads than an underdog that can hardly make a sale or that is past its prime. which is, ironically, the stage in which most business owners would look to sell because of disenchantment and other emotional factors.

It should also be stressed that investors would want a business that has the potential to keep flourishing and growing, and not just one that is “doing well” at the present moment. For this reason, growth projections must be done in the most accurate manner. Moreover, the owner should not completely detach him/herself from the company’s operations during the sale process and, in many instances, investors would want the former owner to stick around even sometime _after _the deal is done.

All of these profits and projections would come at a price, of course, which is ascertained through a meticulous business valuation. Long Island brokers would make sure that all of these factors are included and reflected in the final analysis.

To avoid any discrepancy in this regard and to ensure a buyer’s trust, the “due diligence”, which is the review performed by the prospective buyer to make an informed decision, would have to take into account nearly the same information that is usually provided for business valuations.

Long Island has a very competitive business selling market that is, admittedly, a tough nut to crack, which is why finding the best opportunity to sell your business can get complicated, since you don’t know whether your business could get “dethroned” the next year, so to speak. This gives us the cue to formulate the following question:

WHY WOULD YOU WANT TO SELL A PROFITABLE BUSINESS?

A lot of personal reasons may be involved in this decision (retirement, enrollment in other ventures, etc.) but selling after the most profitable year will ultimately have you reaping a higher number of rewards from your hard labor. In the hopes of having the best business valuation, Long Island business owners should not wait until success has already knocked on their door.

A sizable number of business owners would feel tempted to remain in charge after a very profitable season, which is not the “wrong” decision, either. However, they should assume the risks associated with this choice if they plan to sell in the future.

If you don’t know how to proceed in order to sell your Long Island business, a good business broker would point you in the right direction and get most tasks done for you, including marketing, paperwork, negotiations, and a fair business valuation. Long Island has a wide array of business brokerage firms that may be willing to assist you, in exchange for affordable rates.

Legal Mistakes That Business Sellers Need To Avoid

In the process of selling a business, sellers will encounter a variety of hurdles. Most of these relate to paperwork, proper business valuation, New York City‘s taxation system (which is far more burdensome than that of most US cities), among others.

The amount of work that needs to be done can understandably intimidate any business owner with no prior experience in selling a business.

The worst part is that skipping any of these tasks will potentially have the owner immersed in serious difficulties and his/her credibility will also get harmed along the way. For this reason, it’s very important to get acquainted with all the stages of the process.

MISTAKES THAT BUSINESS SELLERS NEED TO AVOID

Among some of the most common mistakes that sellers make and must be avoided, we include the following:

1. NOT HIRING PROFESSIONAL HELP:

In the process of selling a business, you would need to rely on the work of qualified professionals that can handle things such as paperwork, taxes, banking, and business valuation. NYC is packed with lots of options in terms of brokers, attorneys, real estate agents, accountants, and bankers to get your sale fast-tracked.

The amount of competition in all these fields should also ensure that you get affordable rates to have these tasks done for you, within certain parameters. Nonetheless, make sure that you don’t just hire the cheapest professionals, for they may cause more trouble than they solve.

2. PERFORMING INCORRECT BUSINESS VALUATIONS (NYC BUSINESS BROKERS SHOULD PERFORM THESE TASKS)

Getting professional help is key to getting a more accurate business valuation. NYC business brokers ought to have the necessary pedigree and resources to calculate your business’s worth, but you’d have to play your role as an owner by providing the required financial documentation.

In order to perform correct business valuations, New York City brokers will make a series of calculations based on various metrics obtained from the company’s financial statements and spreadsheets, as well as the local market conditions. This is usually done with the aid of an accountant or accounting partner.

3. LACK OF PRIVACY CONCERNS

Privacy is one of the most overlooked aspects of business selling on the part of business owners. Making your sale publicly known could affect your venture in a variety of ways. You wouldn’t want your competition or your employees to know that you’re planning to sell.

Business brokers are versed in many strategies devised to protect the privacy of the sale. One of them consists of drafting non-disclosure agreements that potential buyers would have to sign before the details of the company are revealed to them.

4. SKIPPING LETTER OF INTENT

Out of fear of losing a potential buyer, business owners neglect to get a letter of intent signed by the interested parties. This may make you lose a bit more time in the selling process, but you’ll possibly waste much more from dealing with prospective investors who don’t take the sale seriously and who feel they can simply back down from the deal with no repercussions.