Seller Note

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April 05, 2023

by a searcher in New York, NY, USA

Have a call tomorrow where I have to convince the owner to take around 30% to 40% of the purchase price as seller note. Cash flow ~$500k, Purchase Price $1.3M. Any strategies that people have found to be particularly effective?

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Reply by a searcher
from Harvard University in Colorado Springs, CO, USA
Agreed. Find a reason for it to be in the seller’s interest

examples include

deferred taxes, if delaying the payment puts them in a lower tax bracket in subsequent years

Offering an attractive interest rate (you might be able to be slightly above market rate)

next, lay out the reasons (if true) that this will be something likely needed from any buyer. Maybe the bank is requiring it for DSC reasons or maybe it’s required in order to generate an acceptable IRR to equity investors (be careful about how you frame that though).

finally, you always have to be willing to walk away. Don’t accept a bad deal just to have a deal. A bad deal is worse than no deal every time.
best of luck
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Reply by a searcher
from Universidad Internacional del Ecuador in Cuenca, Ecuador
The best strategy will ALWAYS come from your ability to read correctly what the seller's motivations are for selling his/her company. Some are motivated almost entirely about their financial return (in which case your argument should be that, if s/he were to keep 30% to 40% equity, s/he'd gain x times more in x years compared to selling 100% of his/her position right now). Start by carefully listening and uncovering the seller's motivations, and you'll find your answer.
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