Did you know nearly 70% of business owners would prefer to sell to someone already familiar with their business, such as family members, key employees, or managers, when planning their transition? According to the Exit Planning Institute’s State of Readiness Survey, internal transitions provide comfort and continuity to the Seller, however, they also raise important considerations including:
- Does the buyer have the financial resources available to close the transaction?
- An internal buyers will likely pay less than the actual market value of the business.
- Do you have agreements in place that guarantee the confidentiality of the sale?
- How long will you be required to assist with training and transitioning post-closing?
- If the sale doesn’t go through, how will this impact the existing relationship with the buyer?
The most frequently overlooked consideration is whether the identified buyer has the financial capacity to close the transaction.
Statistics show that buyers closest to the business often pay less than its actual market value. External buyers, such as private equity firms, or strategic buyers have typically have greater financial resources, enabling them to offer competitive terms, maximizing the seller’s net proceeds. Obtaining an independent valuation or opinion of price helps to ensure accuracy in pricing, regardless of the buyer.
Evaluating Your Buyer’s Financial Capacity
At True North Business Funding (TNBF), we understand that identifying a buyer is just the first step. Ensuring they have an adequate liquidity ratio, and relevant experience is essential to a successful transaction. Our team specializes in thoroughly assessing these factors from a lender’s perspective to confirm your buyer’s financial capacity.
How True North Business Funding Supports Your Sale
Our proven process begins with an individualized, one-on-one conversation. We sit down privately with the buyer to review their financial situation, discussing assets, liabilities, credit history, and overall financial health. This initial step allows us to uncover the buyer’s financial ability to successfully close the transaction.
We also assess the buyer’s professional background, because financial capacity alone does not guarantee success. Lenders consider whether your buyer possesses the necessary transferable skills to successfully manage and grow your business after the sale. We evaluate and document these skills to strengthen your buyer’s position when seeking financing.
Following our assessment, we provide a comprehensive Financing Estimate outlining the buyer’s potential borrowing power, their likely down payment requirements, and summarizes their transferable skills. With this information, both you and your buyer can make informed decisions moving forward.
The Benefits of Partnering with True North
Working with True North Business Funding offers you peace of mind. Our process quickly identifies potential roadblocks, and by proactively addressing financing challenges, you minimize the risk of transaction delays or surprises.
Ready to learn more about your buyer’s financial capacity and successfully transition your business? We’re here to help! Contact us today for a confidential conversation.
Keith Payne, Closing and Finance Director (612) 730-1030
Stephanie Snyder, Closing and Finance Specialist (715) 514-8732
Sources:
Exit Planning Institute. (2024). 2023 National State of Owner Readiness. Now Available: 2023 NATIONAL STATE OF OWNER READINESS REPORT. https://exit-planning-institute.org/2023-national-state-of-owner-readiness
Howell, B. (2024, August 16). Weighing the pros and cons of internal vs. external business buyers. The Bonadio Group. https://www.bonadio.com/article/weighing-the-pros-and-cons-of-internal-vs-external-business-buyers/
