Let's look at a few of the different structures of the payment portion of a potential deal.
You made the decision to sell your restaurant and hired a business broker to assist with the procuring of a buyer and for help navigating the process. With a buyer in place, we want to discuss a few of the different structures of the payment portion of the deal.
Payment through a financing institution
A common form of payment in the sale of a business is through a financing institution that allows the buyer to place a down payment for the purchase and make installments, with interest, over an agreed-upon period until it is paid off. Depending on the size of the deal and available capital, buyers may present offers that include SBA financing. If third-party financing isn’t an option, you may be approached with a seller-financed deal. In this case, like the bank, you will receive a down payment at the closing of the sale followed by payments over a period until the balance is paid in full.
The most preferred form of payment for business owners selling their restaurant is receiving a lump sum. This is when the buyer pays for the business in its entirety at one time and usually in cash. This is often the easiest way to sell your business because once you receive the money and sign the paperwork the deal is done.
When selling your business, you can also get creative. These creative ways of selling your business may include an earn-out or a long-term partnership. A few examples of when an earn-out may take place are when a buyer and a seller can’t reach an agreement on the price, there are growth opportunities that may occur in the near future, long-term contracts, or unpredictable trends in the industry. When a buyer and seller agree on an earn-out the seller receives payments from the buyer at certain points when agreed-upon performance targets are met.
Selling in a partnership
A long-term partnership however is different in the sale structure. A buyer will acquire a certain percentage of the business, usually majority ownership, and the seller will retain the remaining percentage. If you are a co-owner in the business, it is important to have an operating agreement and fully understand the roles, obligations, and rights of all parties.
Working with a professional business broker is the best way to help you navigate the sale of your restaurant and help you get the right price. Brokers will help you with every step of your selling journey from getting your books in order, to being an intermediate between the buyer and the seller.
Bryan Vitagliano is the lead restaurant broker of Strategic Business Brokers Group, in affiliation with American Realty Brokers. He has helped dozens of owners sell their restaurants across Arizona.