Your Buyer Wants It. Will the Bank?

You found a buyer. They like your business and the numbers. They like the opportunity and industry. And they've agreed to your price. Sounds like you've got a deal, right?

Ahh...not so fast, my friend.

One of the biggest sources of friction in today's business sales market isn't finding a willing buyer: it's getting the transaction financed. And here's something every business owner should understand before putting a company on the market: A buyer agreeing to your price doesn't mean the bank will.

The Buyer Isn't the Only One Evaluating Your Business

When a buyer needs financing, the lender is looking at the deal through a completely different lens. The buyer is thinking: "I can see myself owning this business and doing this everyday" All the while, the lender is thinking: "Can this business reliably generate enough cash to repay this loan?"

Lenders are looking closely at cash flow, profitability, debt, financial history, the buyer's financial position, and the overall risk of the transaction. Depending on the deal, SBA financing may also be part of the equation, bringing its own qualification and documentation requirements, which have also recently changed. So even when buyer and seller agree on a price, there can still be a long road between "we have a deal" and "we're closing."

Financing Can Change the Timeline

Today's buyers aren't operating in a vacuum. Borrowing costs, underwriting standards, and lender requirements can create additional hurdles. A buyer may need more documentation, more capital or more time to get financing approved. That can slow down a transaction. And when a deal takes longer, there are more opportunities for things to change. Buyers can get cold feet. Business performance can shift. Due diligence can uncover issues. Financing terms can change. That's why experienced deal management matters. Getting an offer is exciting. Getting it to the closing table is the REAL job, and Sunbelt Business Brokers are equipped to make that happen.

Your Financials Need to Tell a Clear Story

If you're considering selling your business, your financial records should be more than just accurate...they should be understandable.

A buyer and lender should be able to see:

• Where your revenue comes from

• How consistent that revenue is

• What drives your profitability, and where opportunities lie

• Which expenses are necessary to operate the business (and which aren't)

• How much cash the business actually generates

• What risks could affect future performance

• Whether the business can support the proposed acquisition debt
  

If your books require a decoder ring reminiscent of A Christmas Story, you're creating unnecessary friction, and your selling process will be more stressful, painful, and longer. If your business relies heavily on owner add-backs, has inconsistent financial reporting, or has experienced significant swings in profitability, expect questions. The more questions a lender has, the more work it may take to get to yes - so eliminate those questions sooner rather than later.

A Great Business Still Needs a Financeable Deal

Financing challenges don't necessarily mean your business isn't valuable, of course. They may mean the structure of the transaction needs to be reconsidered. The purchase price, buyer's down payment, financing amount, cash flow, and deal terms all have to work together.

That's one reason it can be dangerous for a seller to focus exclusively on getting the highest possible offer. The highest number isn't always the offer most likely to close.

A slightly different offer from a well-qualified buyer with a workable financing structure may ultimately be worth far more than a bigger number that never makes it through underwriting and leaves you back at square one.

Don't Wait Until You Have a Buyer to Prepare

What we're getting at: If you're thinking about selling your business in the next few years, now is the time to start preparing. Clean up your financials and understand your cash flow. Reduce unnecessary owner dependence by documenting your processes thoroughly. Know your customer concentration and demographics. Address obvious weaknesses so there are no elephants in the room. Long story short, understand what a buyer and lender are likely to see when they look under the hood. Preparation doesn't guarantee a smooth transaction. But being unprepared can make a difficult transaction much more difficult and time-consuming.

From "For Sale" to "Sold"

At Sunbelt Business Brokers, we understand that selling a business is about much more than just throwing a listing up on the market. It's about positioning the business, finding qualified buyers, navigating negotiations, managing due diligence, and helping move the transaction toward a successful closing. There's a big difference between "for sale" to "sold". Financing is one a CRITICAL place where that difference becomes very real. So if you're thinking about selling, don't just ask, "What can I get for my business?"

Ask, "What will it take to get this deal all the way to the closing table?" That's where preparation, realistic expectations, and experienced guidance can make a difference.

Ready to understand what your business could look like to today's buyers? Talk to Sunbelt Business Brokers about preparing for your next move.