When selling your business, it would be ideal to receive the full payment in a single transaction on the day of completion. In reality, however, this is uncommon. Most acquisitions are structured with payments made in instalments over time.
There are several reasons for this. Buyers aim to minimise their risk—just as sellers do—and in many cases, they may not have sufficient cash available to complete the purchase outright. As a result, they often need to secure funding from a variety of sources.
Funding
At the level at which we typically operate, buyers tend to finance acquisitions through a combination of debt and equity:
Debt / borrowing sources
Loans from banks and specialist finance providers
Peer-to-peer lending platforms
Crowdfunding
Seller financing (vendor loans)
Asset / cash investment
The buyer’s own capital
Investment from third parties, such as angel investors and venture capital firms
Asset-based contributions or swaps
Instalments
Generally, the higher the purchase price, the more likely it is that payments will be spread over time. Typically, an initial payment of 50–60% is made upfront, although in some cases this can be as high as 75%.
The remaining balance is paid at agreed intervals, as set out in the sale and purchase agreement—often every six or twelve months. These deferred payments may sometimes be linked to performance criteria. While such conditions can be justified in certain cases, we generally advise caution, as the seller may no longer have control over the business’s performance post-sale. Ultimately, this is a matter for negotiation and will vary from deal to deal.
In most cases, a longer payment period may result in a higher overall sale price, whereas a shorter timeframe typically leads to a lower agreed value. However, immediate funds are more certain than future payments, so we generally favour larger upfront instalments and shorter completion periods.
If you would like to discuss this further, please get in touch:
rupert@weybrookbusinessbrokers.com or 07826 050690
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