If you are considering selling your business someday you have probably been researching topics like business valuation, business brokers, M&A terms, and business sale structures. Small business acquisition deals refer to the purchase of an existing small business by another party. The structure of these deals can vary widely depending on various factors such as the size of the business being purchased, the industry in which it operates, and the financial position of the buyer. However, there are several common elements that are frequently found in small business acquisition deals.
Cash Down Payment
The most straightforward form of payment in a small business acquisition deal is a cash down payment. The buyer may choose to pay a portion of the purchase price in cash upfront, with the remainder being paid over time in a variety of ways.
Seller Financing
In some cases, the seller of the business may choose to finance a portion of the purchase price. This means that the seller provides a loan to the buyer, which the buyer pays back over time. The terms of this financing can vary, including the interest rate, the length of the loan, and the payment schedule.
Bank Loans
Another common form of financing in small business acquisition deals is a bank loan. The buyer may apply for a loan from a bank to help finance the purchase of the business. This loan will typically have terms similar to those of a traditional loan, including an interest rate, a repayment period, and a monthly payment schedule.
Earn Outs
An earn out is a type of deal structure in which the buyer and seller agree on a portion of the purchase price being paid based on the future performance of the business. The seller may receive a portion of the purchase price after a specified period of time if the business meets certain performance milestones. This type of structure provides an incentive for the seller to continue working to grow the business after the sale, as the success of the business will directly impact the amount of money they receive.
Summary
In conclusion, small business acquisition deals can be structured in a variety of ways, including cash down payments, seller financing, bank loans, and earn outs. The structure of a deal will depend on the specific circumstances of the transaction, including the financial position of the buyer and the size of the business being purchased. Regardless of the structure, it is important for both the buyer and the seller to understand the terms of the deal and to consult with experienced professionals to ensure that their interests are protected.