Most buyers and sellers just assume that when you buy or sell a business you pay cash. While cash may be a component in the sales price, generally a business sale is never an all cash deal.
Often, there are secured notes and/or unsecured notes that the seller my extend to the buyer. Of course, a secured note will cost the buyer more than an unsecured note.
If the buyer is a corporation, some or all of the purchase price may be in the form of stock. Of course, stock in a private company is quiet different from stock in a public company, especially from a liquidity standpoint. If you receive stock as part of the purchase price, you must determine if the shares are restricted or unrestricted. If the buyer issues restricted shares, it means that the seller cannot cash out immediately after the sale and dump large quantities of stock that can adversely affect the buyers stock price. Moreover, there are many tax issues and options with restricted shares. It is highly recommended that sellers seek financially and tax advise when sale price includes stock.
Another form of payment is known as an earn-out. An earn-out is where the seller gets paid based on the post-sale performance of the business.
After the sale, the buyer often does not want the seller to start a competing business. After all, the seller could easily steal back his previous employees, customers, and vendors. To address this problem, the buyer often allocates some of the sale prices to a non-compete agreement.
Sometimes the buyer wants the seller to remain partially or fully engaged with the business. In this case, the buyer may offer a consulting or employment agreement to the seller.
