How to Pitch a reluctant seller to hold a seller note?
November 21, 2023
by a searcher from Georgetown University in Helena, MT, USA
Does anyone have stories from experience they would be willing to share about how they convinced a reluctant seller to hold a note in an acquisition transaction?
What were your main points that shifted their reluctance to willingness?
Is there a way to calculate potential tax savings in holding a note?
from Harvard University in New York, NY, USA
1. Make sure he understands what a seller's note is. Many sellers, esp unbrokered ones, don't really know what a seller's note is and think it's some way for you to cheat him out of money. Explain clearly what it is, an example of a standard term, and that it's customizable to your particular deal. Also explain how much interest he can stand to make, which effectively boosts his sale price.
2. Explain to him there are potential significant tax benefits. This is especially true if the seller is planning to retire without a secondary income source., and if the deal is structured as an asset sale. You may need to enlist an accountant for this, but you should be able to demonstrate at least conceptually the tax benefit of deferring gains over lower income years. Also remind him, the tax savings is ON TOP of his interest gains.
3. Try to convince him that when dealing with small business deals, seller's notes are the norm and not the exception. Explain to him why YOU want a seller's note, and how to benefits both parties. If it is a brokered deal, shouldn't be an issue. If not, you can try pulling up a bunch of bizbuysell listings that clearly list out seller's notes as part of the financing terms to show him that it is in fact industry standard.
from University of San Francisco in Redwood City, CA, USA
1. how fewer dollars they'll pay the IRS assuming they'll be in a lower tax bracket as they take the seller note over x years versus all at once in a cash purchase.
2. how much interest, especially nowadays, they'll accrue simply by letting you pay them back over time.
Obviously buyer competition will dictate how convincing this point is to the seller as there might be another buyer willing to pay all cash. Either way, it's also a really good sign that the seller believes in the business and that they're willing to bet some of the purchase price on it. Every deal is different but it's something to be weary of if a seller wants all cash up front with zero skin in the game. That's where I think most searchers would start to ask "what does the seller know that I don't?"
Good luck!