Cash is king. Money talks. Take the cash. These expressions are ingrained in our minds and influence our business decisions. After all, when it comes to selling a business, the seller is often well advised that when presented with two similar offers, they should opt for the cash offer over one from a buyer who needs to secure financing. However, when presented with such an option, the choice is not always that easy for several reasons:
- Good buyers are hard to find, and when you are selling a highly valued business, the buyer pool shrinks considerably (almost exponentially, it seems).
- A good deal is rarely just about the money. As I point out in a previous post, “Top 5 Do’s When Negotiating the Sale of an Auto Dealership,” getting top dollar for your business is certainly a key consideration, but you may also want to consider your legacy in the industry and in the community, the future wellbeing of your employees, and whether the new owners will continue to run the business according to a certain set of principles or core values.
- You cannot always judge a buyer by the amount of cash that buyer has on hand. A great prospect may need or want to finance all or a portion of the deal for any number of reasons, including the possibility that the person’s cash is tied up in other very successful ventures.
- The fear, distrust, and uncertainty that surround non-cash offers can cloud a buyer’s judgment and derail the offer that holds the greatest potential upside for all parties involved.
The key to evaluating offers is to ask the right questions. Instead of asking whether a prospective buyer has the cash on hand to purchase the business, consider all the terms of all offers and ask how likely it is that the buyer you want to sell to can secure the necessary financing.