Paying to buy an existing business can often take two routes – instalments or a lump sum. This will depend on how much the buyer can afford to pay, payment conditions put forward by the seller and how the sale is financed, such as a business loan, company reserves, or seller financing.
Seller financing is a loan offered by the business seller to the buyer to provide easy access to finance, enable the buyer to spread payments and for the seller to earn a mark-up price.
The type of payment method used will often determine the frequency of payments. For example, if a lender transfers a business loan in instalments, the business may be paid for in instalments while the loan is gradually repaid. If a large business with sizeable company reserves buys a small existing business, they may have enough capital to cover the full cost.
Pay in instalments – The buyer will pay a small deposit and spread the remainder across several years. The payment schedule, terms, conditions, payment collection method and interest rate will be detailed in the sales agreement
Lump sum – A business buyer with rich capital may pay a lump sum if they expect the value of the business to increase, they wish to beat another offer or simply prefer to settle the balance upfront