Most buyers and sellers just assume that when you buy or sell a business you pay cash. While cash may be a component in the sales price, generally a business sale is never an all cash deal.
If the buyer is a corporation, some or all of the purchase price may be in the form of stock. Of course, stock in a private company is quiet different from stock in a public company, especially from a liquidity standpoint. If you receive stock as part of the purchase price, you must determine if the shares are restricted or unrestricted. If the buyer issues restricted shares, it means that the seller cannot cash out immediately after the sale and dump large quantities of stock that can adversely affect the buyers stock price. Moreover, there are many tax issues and options with restricted shares. It is highly recommended that sellers seek financially and tax advise when sale price includes stock.
Another form of payment is known as an earn-out. An earn-out is where the seller gets paid based on the post-sale performance of the business.
After the sale, the buyer often does not want the seller to start a competing business. After all, the seller could easily steal back his previous employees, customers, and vendors. To address this problem, the buyer often allocates some of the sale prices to a non-compete agreement.
As you can see, there are many options that a buyer can use other than cash on the barrelhead to compensate the seller.
What forms of payment are you willing to accept during the sale of your business?
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