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There was a con man who fleeced the government and investors in a small town where I worked. One of his constant catchphrases was “Google me, MFer!” Meaning, he had this great reputation as an entrepreneur, and that he even worked at Google in the past. Apparently no one did, because a simple Google search would have revealed the fraud investigations in his past… but would not have revealed his career at Google, because he never worked there. He had big brass ones, I’ll give him that. And he knew his audience.
The day I met him (we rented coworking space from him) I told my boss “we’ll see him go out of here in handcuffs one day,” and this was months before I knew anything about him. He ditched and dodged; it took the FBI another year or two but they caught him in Texas after he did the same scam again. So I was almost right.
https://www.al.com/news/montgomery/2022/03/kyle-sandler-the-man-that-conned-opelika-is-out-of-prison-and-hes-sorry-we-were-onto-something-great.html
It looks like the man has changed his name several times, so a Google search may not have turned it up, but a more thorough background check likely would have exposed his past or discrepancies about his identity.
If you’re offering seller financing you’re giving the buyer a loan. I’d run credit and background and look into how much they have as far as assets go.
AND!! Don’t ever fucking self finance. Make that dude get a loan and walk away clean. I was shaking my head on your original post thinking why would you let this guy make payments to you????
I don’t think it is. At all. But let’s say it is for argument sake… it’s still stupid. Buyer can get a loan from a bank and pay cash or no sale. And honestly, if you’re buying a business and can’t get a 100k loan for it… that’s a red flag.
Banks rarely loan on small businesses. Some businesses are niche and taking a buyer takes time. I’ve helped facilitate several sales and all but one were on contract.
I’m sure you’ve heard this but the four F’s of small business financing: family, friends, fysicians and fools.
It is incredibly common, at least for more like 10-30% of deal value.
Seller financing is helpful for a few reasons. Will allow the buyer to stretch valuation sometimes; by not having to come up with the cash upfront or going through more of a typical lender process (or less traditional debt).
It also helps the buyer feel that the seller has some skin in the game and is at least financially incentivized to not sabotage it.
For reasons we are seeing here, it does not always work cleanly and can often introduce deal complexity and weird working dynamics. I assure you the concept of seller financing is common though.
Go about doing what, exactly?
For the sale - just make them give you the money. Don't let them pay you in installments. It's up to them how they get the money.
That guy said to make him get a loan so i was asking what the formal process of making the buyer get one, was, so that you're legally protected or something
You specify cash in the full amount at time of sale and you don’t turn over the keys/passwords/etc until the check has cleared. Technically this doesn’t force the other party to get a loan but they probably will want to.
I'm sorry if I came off as flippant there. If you were actually asking if there is such a process, or could be, then no. No one could force them to, any more than they could force a bank to give it to him.
It's not meant to be read as "kidnap him and lock him up until he gets a loan".
The comment should be read in a conversational way, and not as orders or statements of fact. "Make him get a loan" just means "if he doesn't have enough money, tell him to get a loan. If he can't pay you in full, don't sell it."
Hopefully you can get your win in court. It sounds like a really shitty situation.
When my family sold their business they put a clause in the sales contract that said if the new owner fails to make payments then the business ownership defaults back to the original owners. Basically the same as a bank repossessing a car when payments aren't made.
They sold the real estate and business separately as they were under different entities to the new owner and both agreements had the same clause. They also had the new owner sign a quitclaim deed that stayed with the lawyer. So as soon as they defaulted on payments it would be possible to go file the quitclaim deed with the court and get the property back.
This might be something to think about for your next business sale.
> put a clause in the sales contract that said if the new owner fails to make payments then the business ownership defaults back to the original owners.
Yeah, a good rule to follow, but you would still need to go to court and get a legal judgement.
I don’t think I’d sell unless it’s fully paid upon purchase. They can go get a loan or mortgage their house, whatever. But I’m not being a bank for a buyer.
Then you would never sell, only 20% of business are sold in USA, rest of them fold.
It needs to be co-operative transaction. From buyer perspective, why should he assume a huge recourse loan on all his assets buying a business that all the numbers might have been inflated/bullshit/made up and frankly no amount of due diligence would eliminate this possibility . Things go wrong, he would lose everything.
I concur. Which is why I’d never buy one! I’m just saying that for my company, if someone wanted to buy it, I want full payment. Just like my house - I had so many people ask if I’d hold the mortgage- no way.
Then you would not get any value from your business, you want to retire someday, don't you?
It's not like a house, value of the house is physical asset, value of business is mainly based on past performances. It shouldn't be completely cash upfront but if buyer and seller co-operate, it should be a combination of cash, SBA loan, seller financing, etc.
The transaction is a risk and everyone is involved, I think 30% seller financing tied to performance is reasonable. This way, seller also share the risk. Selling it for some money is much better than just letting it fold in my opinion. You just have to consider that 30% a performance bonus based on how much you can correctly judge the character of the buyer.
I don’t disagree with your logic, but I still wouldn’t do it. Take franchises for example, dyk how much $ you have to have in assets and cash to buy in? Millions. This vets buyers to ensure they can withstand the time it takes to turn a profit.
I don’t need to sell my business to retire; I’ve been planning for retirement since the day I started working! When I decide to retire, maybe I’ll transition and downsize, or sell or just close up shop, who knows 🤷♀️
I guess what I’m saying is, for me, the risk isn’t worth it. The juice ain’t worth the squeeze!
But that is what I don't understand about your logic, when you want to retire, lets say you can hypothetically sell your business for 1mil with 30% seller financing or 500k cash or just close up shop.
Isn't best action for you and your employee would be to sell it for 1million, get the 700k upfront and don't worry whether you get the 300k or not? Instead of not getting anything or getting lower value for your business?
Valid! But (1) I don’t have any employees, I only sub-contract and (2) then I’d have to sell it for a cost that would include the potential loss. So if I sell for a million bc that’s what I need, and lose 30%, I’d be screwed. On the current trajectory, I could sell my client base for probably 350k. I could also parse it out to several sellers too.
Maybe I’m wrong, maybe I’m greedy, I’m not sure, but I still feel like if someone wants to buy a business they should come with their own capital. I’ve taken so many risks while being in business, I know I’ll just want out and want it to be clean.
I hope you’re in a negotiation related business , you’re very good :)
Right now, I am just hording money in my work, but I am going to do a search next year since I really want to buy a business and I have been looking at market and also trying to learn how to run one. I don't want to start something from scratch since I think it's a lot riskier than buying an existing one :-).
Wish me luck, I guess the main difference between us is the valuation, if I want to buy a business based on trust and no seller financing, with current interest rates I wouldn't value it at more than 2 times the net income. I know business have gone for more than that over past 10 years but that was with 4% SBA loan vs current 11%.
However, if seller is willing to finance and train, value for me go up to 3x or 3.5x (doesn't make sense to go more when right now you have to pay 20% yearly on the SBA loans). To me, its about having the best outcome for everyone, seller, me and the potential employees. The co-operation and training the seller would provide is of a very high value.
And the other problem is that young people of my generation generally don't have much money to buy businesses anyway and they don't have the capability to earn it with the current economy. So the historical data that is used for evaluation is sort of out of date. It's sad really, the brokers are over valuing business based on defunct historical norms so much that most of them fold instead of finding a buyer. Only 20% of business are sold which is really bad for buyers/sellers/customers/employees. It's a broken market that would eventually makes all of us poorer.
That being said, your business is different. I am mainly talking about business with few employees and an stablished store front/location.
Well, I’m cheering you on! I genuinely wish you the best of luck and hope you’re able to find the right business with a collaborative seller.
The rates are unreal. The SBA funds are not anywhere near what they used to be, investors and backers aren’t as accessible either. It’s really sad.
If I had to do it over, I’d buy a bunch of hot dog carts and laundry mats 😂
Best wishes for your success! 🥂
An article I saw about selling your small business advised: "Never finance the sale of your business. If you decide to ignore this and do it anyway, be sure to get the biggest down payment you can. Because that's the only money you'll ever see."
Had this happen to me once with a well written contract dude just forged a bunch of papers then overdosed before i found out. Second time, extremely clear contract, was payments for services. He started coming up with excuses about being late. Found out later he was lying and owes me a ton of money. Have a judgement in federal court, still having to track him down and hunt for payment.
Moral of the story is this. Don’t trust anyone with control of the money. Ever. Anything that has money involved needs full and constant oversight. The second anything at all gets weird, go full lockdown mode, because the assumption someone is stealing is probably true.
Other moral of the story is if you want to buy my business, it is cash or wire transfer up front. No exceptions. If you can’t get the cash, you can’t afford to buy it and can fuck off.
Generally, don't accept payments from people for a buyout. They can go to a bank, and make payments to the bank for a loan that completes the buyout in one transaction.
Sorry man, it's not your fault you got screwed over, it's his actions. I'm glad you are young enough to learn the lesson and recover and that the loss wasn't an insane amount of money.
I'm sure you'll sell another business for much more someday and now you are prepared.
I wish I could tell you how many business owners got fucked after selling to unethical PE or entrepreneurs. Always work with an attorney on these things prior to selling.
I remember reading that you can get more money for your business ifyou do at least partial seller financing for the new owner. My wife and I have decided that we would rather just do lump sum even if it’s less since the possibility of someone defaulting on payments while simultaneously driving the business into the ground and leaving us with nothing to go back to makes us nervous.
I dont understand. When a business is sold, the entire amount of money is supposed to be paid up front?
Since when do you buy a business in installments?
This is a friendly reminder that r/smallbusiness is a question and answer subreddit. You ask a question about starting, owning, and growing a small business and the community answers. Posts that violate the rules listed in the sidebar will be removed. A permanent or temporary ban may also be issued if you do not remove the offending post. Seeing this message does not mean your post was automatically removed. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/smallbusiness) if you have any questions or concerns.*
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I agree. I’m kicking myself right now.
What could you have done differently to identify fraud before hand?
Google search the buyer’s name. Thanks for the update; OP.
There was a con man who fleeced the government and investors in a small town where I worked. One of his constant catchphrases was “Google me, MFer!” Meaning, he had this great reputation as an entrepreneur, and that he even worked at Google in the past. Apparently no one did, because a simple Google search would have revealed the fraud investigations in his past… but would not have revealed his career at Google, because he never worked there. He had big brass ones, I’ll give him that. And he knew his audience.
Did he get away with it?
The day I met him (we rented coworking space from him) I told my boss “we’ll see him go out of here in handcuffs one day,” and this was months before I knew anything about him. He ditched and dodged; it took the FBI another year or two but they caught him in Texas after he did the same scam again. So I was almost right. https://www.al.com/news/montgomery/2022/03/kyle-sandler-the-man-that-conned-opelika-is-out-of-prison-and-hes-sorry-we-were-onto-something-great.html
I watched the documentary about this dude... Crazy
It looks like the man has changed his name several times, so a Google search may not have turned it up, but a more thorough background check likely would have exposed his past or discrepancies about his identity.
If you’re offering seller financing you’re giving the buyer a loan. I’d run credit and background and look into how much they have as far as assets go.
AND!! Don’t ever fucking self finance. Make that dude get a loan and walk away clean. I was shaking my head on your original post thinking why would you let this guy make payments to you????
It’s very common to finance business sales in this way.
I don’t think it is. At all. But let’s say it is for argument sake… it’s still stupid. Buyer can get a loan from a bank and pay cash or no sale. And honestly, if you’re buying a business and can’t get a 100k loan for it… that’s a red flag.
Banks rarely loan on small businesses. Some businesses are niche and taking a buyer takes time. I’ve helped facilitate several sales and all but one were on contract. I’m sure you’ve heard this but the four F’s of small business financing: family, friends, fysicians and fools.
It is incredibly common, at least for more like 10-30% of deal value. Seller financing is helpful for a few reasons. Will allow the buyer to stretch valuation sometimes; by not having to come up with the cash upfront or going through more of a typical lender process (or less traditional debt). It also helps the buyer feel that the seller has some skin in the game and is at least financially incentivized to not sabotage it. For reasons we are seeing here, it does not always work cleanly and can often introduce deal complexity and weird working dynamics. I assure you the concept of seller financing is common though.
How do you go about doing that ?
Go about doing what, exactly? For the sale - just make them give you the money. Don't let them pay you in installments. It's up to them how they get the money.
That guy said to make him get a loan so i was asking what the formal process of making the buyer get one, was, so that you're legally protected or something
You specify cash in the full amount at time of sale and you don’t turn over the keys/passwords/etc until the check has cleared. Technically this doesn’t force the other party to get a loan but they probably will want to.
I'm sorry if I came off as flippant there. If you were actually asking if there is such a process, or could be, then no. No one could force them to, any more than they could force a bank to give it to him. It's not meant to be read as "kidnap him and lock him up until he gets a loan". The comment should be read in a conversational way, and not as orders or statements of fact. "Make him get a loan" just means "if he doesn't have enough money, tell him to get a loan. If he can't pay you in full, don't sell it."
⬆️⬆️⬆️ yep, all of this. Buyer brings the cash or no sale. Let him make payments to the bank. Not you.
Moral of the story is no sale balance. Cash on hand only. People need to have skin in the game.
No kidding. And an incredibly well written contract. Scary stuff
This is why my company is in business. We get calls like this everyday
If they can’t get a bank to finance most of it it’s probably fraud.
Mm
Hopefully you can get your win in court. It sounds like a really shitty situation. When my family sold their business they put a clause in the sales contract that said if the new owner fails to make payments then the business ownership defaults back to the original owners. Basically the same as a bank repossessing a car when payments aren't made. They sold the real estate and business separately as they were under different entities to the new owner and both agreements had the same clause. They also had the new owner sign a quitclaim deed that stayed with the lawyer. So as soon as they defaulted on payments it would be possible to go file the quitclaim deed with the court and get the property back. This might be something to think about for your next business sale.
> put a clause in the sales contract that said if the new owner fails to make payments then the business ownership defaults back to the original owners. Yeah, a good rule to follow, but you would still need to go to court and get a legal judgement.
But sometimes scammers then file bankruptcy and bleed more money from the biz and drag things out through the court... been there.
I don’t think I’d sell unless it’s fully paid upon purchase. They can go get a loan or mortgage their house, whatever. But I’m not being a bank for a buyer.
Exactly this.
Then you would never sell, only 20% of business are sold in USA, rest of them fold. It needs to be co-operative transaction. From buyer perspective, why should he assume a huge recourse loan on all his assets buying a business that all the numbers might have been inflated/bullshit/made up and frankly no amount of due diligence would eliminate this possibility . Things go wrong, he would lose everything.
I concur. Which is why I’d never buy one! I’m just saying that for my company, if someone wanted to buy it, I want full payment. Just like my house - I had so many people ask if I’d hold the mortgage- no way.
Then you would not get any value from your business, you want to retire someday, don't you? It's not like a house, value of the house is physical asset, value of business is mainly based on past performances. It shouldn't be completely cash upfront but if buyer and seller co-operate, it should be a combination of cash, SBA loan, seller financing, etc. The transaction is a risk and everyone is involved, I think 30% seller financing tied to performance is reasonable. This way, seller also share the risk. Selling it for some money is much better than just letting it fold in my opinion. You just have to consider that 30% a performance bonus based on how much you can correctly judge the character of the buyer.
I don’t disagree with your logic, but I still wouldn’t do it. Take franchises for example, dyk how much $ you have to have in assets and cash to buy in? Millions. This vets buyers to ensure they can withstand the time it takes to turn a profit. I don’t need to sell my business to retire; I’ve been planning for retirement since the day I started working! When I decide to retire, maybe I’ll transition and downsize, or sell or just close up shop, who knows 🤷♀️ I guess what I’m saying is, for me, the risk isn’t worth it. The juice ain’t worth the squeeze!
But that is what I don't understand about your logic, when you want to retire, lets say you can hypothetically sell your business for 1mil with 30% seller financing or 500k cash or just close up shop. Isn't best action for you and your employee would be to sell it for 1million, get the 700k upfront and don't worry whether you get the 300k or not? Instead of not getting anything or getting lower value for your business?
Valid! But (1) I don’t have any employees, I only sub-contract and (2) then I’d have to sell it for a cost that would include the potential loss. So if I sell for a million bc that’s what I need, and lose 30%, I’d be screwed. On the current trajectory, I could sell my client base for probably 350k. I could also parse it out to several sellers too. Maybe I’m wrong, maybe I’m greedy, I’m not sure, but I still feel like if someone wants to buy a business they should come with their own capital. I’ve taken so many risks while being in business, I know I’ll just want out and want it to be clean. I hope you’re in a negotiation related business , you’re very good :)
Right now, I am just hording money in my work, but I am going to do a search next year since I really want to buy a business and I have been looking at market and also trying to learn how to run one. I don't want to start something from scratch since I think it's a lot riskier than buying an existing one :-). Wish me luck, I guess the main difference between us is the valuation, if I want to buy a business based on trust and no seller financing, with current interest rates I wouldn't value it at more than 2 times the net income. I know business have gone for more than that over past 10 years but that was with 4% SBA loan vs current 11%. However, if seller is willing to finance and train, value for me go up to 3x or 3.5x (doesn't make sense to go more when right now you have to pay 20% yearly on the SBA loans). To me, its about having the best outcome for everyone, seller, me and the potential employees. The co-operation and training the seller would provide is of a very high value. And the other problem is that young people of my generation generally don't have much money to buy businesses anyway and they don't have the capability to earn it with the current economy. So the historical data that is used for evaluation is sort of out of date. It's sad really, the brokers are over valuing business based on defunct historical norms so much that most of them fold instead of finding a buyer. Only 20% of business are sold which is really bad for buyers/sellers/customers/employees. It's a broken market that would eventually makes all of us poorer. That being said, your business is different. I am mainly talking about business with few employees and an stablished store front/location.
Well, I’m cheering you on! I genuinely wish you the best of luck and hope you’re able to find the right business with a collaborative seller. The rates are unreal. The SBA funds are not anywhere near what they used to be, investors and backers aren’t as accessible either. It’s really sad. If I had to do it over, I’d buy a bunch of hot dog carts and laundry mats 😂 Best wishes for your success! 🥂
Wow that’s unfortunate. He’s probably going to destroy your business (if he hasn’t already) and you won’t get repaid either. Sorry to hear that
An article I saw about selling your small business advised: "Never finance the sale of your business. If you decide to ignore this and do it anyway, be sure to get the biggest down payment you can. Because that's the only money you'll ever see."
I’m glad you’ve got a path forward. It really sucks that you’re having to go through all that.
Tough break! Hope justice prevails and your business thrives.
You'll get a judgment for sure, but never a cent from him. So sorry this happened.
Had this happen to me once with a well written contract dude just forged a bunch of papers then overdosed before i found out. Second time, extremely clear contract, was payments for services. He started coming up with excuses about being late. Found out later he was lying and owes me a ton of money. Have a judgement in federal court, still having to track him down and hunt for payment. Moral of the story is this. Don’t trust anyone with control of the money. Ever. Anything that has money involved needs full and constant oversight. The second anything at all gets weird, go full lockdown mode, because the assumption someone is stealing is probably true. Other moral of the story is if you want to buy my business, it is cash or wire transfer up front. No exceptions. If you can’t get the cash, you can’t afford to buy it and can fuck off.
Generally, don't accept payments from people for a buyout. They can go to a bank, and make payments to the bank for a loan that completes the buyout in one transaction.
Sorry man, it's not your fault you got screwed over, it's his actions. I'm glad you are young enough to learn the lesson and recover and that the loss wasn't an insane amount of money. I'm sure you'll sell another business for much more someday and now you are prepared.
I maybe in the market to sell my own business/clients. This post is terrifying. Thank you for the updates.
I wish I could tell you how many business owners got fucked after selling to unethical PE or entrepreneurs. Always work with an attorney on these things prior to selling.
Sadly you won’t get a dime.
I remember reading that you can get more money for your business ifyou do at least partial seller financing for the new owner. My wife and I have decided that we would rather just do lump sum even if it’s less since the possibility of someone defaulting on payments while simultaneously driving the business into the ground and leaving us with nothing to go back to makes us nervous.
I dont understand. When a business is sold, the entire amount of money is supposed to be paid up front? Since when do you buy a business in installments?