Buyers of Small Businesses have one major advantage. Their deals are (relatively) hard to finance. This makes the competition that much less. I cannot tell you how many deals I have passed on only to find that the deal is still on the market 2 years later. I cannot tell you how many times someone beat me out with a signed LOI which then fell through within a few months. I cannot tell you how many times I have a had a second, third and fourth chance to look at a deal because the financing fell through. People do not know how to finance a deal. Almost all of the deals that are taken off the market with a signed letter or contract come back on the market again. It is utterly incredible. Every buyer out there can have the distinct pleasure of watching others fail to acquire a business. Nearly every deal they see will experience that phenomenon.
So where is the root of that problem? It starts with the deal itself. The buyer will almost always promise the seller too much in order to get a deal done. They will offer more cash down than they can finance. That’s it. That’s the secret of this business. Get the cash down. Hammer it to death. Increase the price, add paper, provide incentives, but smash the cash. Yes, it’s tough to do. There are lots of strategies and ways to do that but it must be done in order to land a bankable deal.
One must know how much of the cash requirement at closing he/she can reasonably expect to finance. This includes their cash plus third party financing. You must know where it will come from. And lenders like collateral, thank you. So in order to assess the financing you must know the collateral and how much the collateral will yield in financing. Just like borrowing against your house only harder.
