We are in the process of conducting some due diligence on a business we want to acquire. It is a website that is generating about $33,000 a year in income. We are currently trying to figure out the purchase price and some other threads in this forum have been helpful with that but another question has come up. Should be pay the full amount for the business all up front or effectively take a loan from the seller and pay it over time? Any thoughts or suggestions would be helpful. Thanks.

Think of it like buying a home. If you could afford it would you pay for your home and not have the worry of the monthly payment also recognizing you would not get a tax benefit. Or would you prefer to get the tax benefit and pay for it over time it is as much a financial decision as it is a personal decision.

It is almost always better to finance a deal overtime because you can use the business cash to finance the acquisition rather than have it coming out of your pocket.

I agree with BDA1 but it is difficult to find sellers who will be willing to give you a loan or have some sort of contingent payment. If you find one take advantage of it. It has been our experience that it is better just to cut the ties. It is difficult to make changes when the former owner is looking over your shoulder.

When we bought our business we paid 90% of the price upfront then paid the remaining 10% 30 days after the sale to make sure the seller had incentive to make sure there was a successful transition program

Thanks for you thoughts I got some good ideas on how we want to take this forward.

You may want to consider an earn out but they are hard to track. For example if the revenue of the business increases X percent they get a piece of it. This insures they still have a vested interest in the business. There is a time limit on it usually 1-5 years depending how long the prior owner wants to be involvled in the business.

I would not recommend an earn out for a transaction this size you would take more time figuring it out than running the business.