Did you know that 90% of businesses sold are partially funded by the seller? On average, the seller finances between 40% and 50% of the selling price. When considering how much you can afford, it is important to factor in the possibility of using the seller to provide partial funding. Banks and formal financing institutions have made financing of small businesses very difficult of late, and in many instances the seller is forced to provide partial funding if the business is to be sold.
Using seller funding give the buyer additional assurances as to the claimed performance of the business. Business sellers are unlikely to distort crucial information if they are providing funding. We recommend that buyers have at least 50% of the purchase price available in cash. Buyers who walk into a deal with 50% of the businesses asking price are more likely to negotiate with a seller, and get the seller to finance the balance of the purchase price.
Use this formula when determining the price of a business you can afford.