The dream of most small business owners is to successfully run the company and then either pass it on to the next generation or sell it to the next owner.

Unfortunately, neither of those options are without peril. The “next generation” is probably your children and many of them have seen you work nights and weekends and endure the business cycles and seasonality of the mountains.

Put simply the glamour of “owning a business” is not there with many in this generation and that often eliminates the option of passing the business down. The kids want to do something else.

This limits your exit strategy to selling to a non-family member. Many of the businesses that are for sale here in northeast Arizona are valued anywhere from $100,000 to over a $1 million.

In the last five years the Small Business Development Center hosted at Northland Pioneer College has assisted numerous sellers complete the sale of their business but never in that five-year period of time was the buyer able to pay the entire amount in cash.

People who are looking to buy a business in our region simply do not have that kind of money and need to get some form of financing.

Bank financing

The vast majority of bank lending policies are made on a national level so that a bank who is headquartered in Chicago or New York doesn’t really care that most of our businesses have experienced record years.

These banks are only concerned about the national economy and as a result have tightened down lending to buy businesses. Even if you find a willing and qualified buyer they may have real trouble getting the financing needed to complete the transactions.

How you as the seller can help

• If you are planning to sell you need to declare all of the income. We all know that in some small businesses sometimes cash sales do not get recorded. This dramatically hurts the seller when it comes time to sell.

The institution cannot lend on what you “say” you made and if taking cash out has significantly lowered the profitability of the company there may be no financing.

• Understand that the buyer’s bank may ask you to jump through a lot more hoops than before and the process is going to take longer. Previously, you would have to provide last year’s financial statements but now if it has been three months since the last statement they may want to see another one. Everything will be looked at closer.

• A detailed list of what assets are being sold will be a must. As underwriting gets tighter every detail matters.

• Provide your buyer (and their financing source) with information to say “yes.”

Trendline charts showing increasing sales and profit, future contracts or future bookings. In the past we always assumed that the buyers could see the potential — now point it out.

• Your buyer and the bank may want to see some sort of employment contract or consulting agreement for you to assist the new owner for a certain period of time. Both the bank and the new owner want to succeed and the best way for that to happen is with your help.

• You need to continue to solicit and accept “standby” offers for the business until the buyer has confirmed financing. When you are buying a car, you can get a loan “pre-approved.”

That does not exist when your buyer is trying to buy your business.

Owner carry

We know, we have heard you say it and we agree- “I don’t want to carry the new owner, I want to make a clean break, I don’t want to be tied to it, etc.”

All of these are good and valid reasons; however, our experience indicates that over the past several years if you want to sell your business you have a three times better chance of selling it if you are willing to carry the new owner. Carrying the new owner does not mean that you walk away with nothing. As with a bank loan you can expect a buyer to come up with a down payment of 10% or 20% or more followed by regular payments thereafter. However, there are some things that you can do that will make an owner carry more secure and more attractive for you to consider.

• Your security is being able to take the business back but the major determinate of if that will happen is who you sell to. If you sell to your long-time manager who you know has a good work ethic, and knows the business, products and customers, you will feel a lot more secure than if you sell it to a person you have just met. Always look to see if there is somebody within the company who would be a good buyer.

• If you are thinking about selling, with an owner carry, to a stranger you should check references and it is not unusual to ask them to work with you for a period of time before the sale closes. This will allow you to see how they are in action.

• You should negotiate an employment contract or consulting agreement to “nudge” the new owner in the right direction while they are getting started.

• You should negotiate the ability to inspect the books while you are owed to make sure everything is as it appears.

• You can negotiate a “balloon” payment at any point. For example, the purchase can be amortized over 10 years but there can be a balloon payment due at five years. After five years of profitably operating the company your buyers will be in a much better position to get financing through more conventional financial institutions.

How the SBDC can help

If your buyer is applying through a bank we can help you get them what they need and help them get organized for the bank. We can also act like a “translator” to ensure you both are answering the bank questions. We do not have loyalty to a specific bank and will be happy to get your transaction in front of several possible lenders.

If you are thinking about an owner carry remember there is no “standard deal.” The deal is whatever the buyer and the seller decide it is and we can help by suggesting what others have done. The best owner carry deals are the ones that are good for both sides and we can help you get there.

Finally, if you are thinking about selling in a couple of years, get with us now. We can help you make sure that your business is in the best shape possible.

A profitable exit strategy does exist for you after years of taking good care of your business. However, it does require knowledge, planning and patience

The Small Business Development Center (SBDC) hosted by NPC is a no-cost one of one counselling service funded by the SBA and NPC to assist local businesses and those wanting to start a business. For free assistance contact the SBDC at 928-532-6170 or ask for assistance at

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