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Are Cash Deals a Thing of the Past?

July 30, 2011 By Sozo Staff

Paying for a business entirely in cash may not be the norm, but it does occur. A buyer with the ability to make a cash deal may be able to enjoy a lower rate, while a seller can eliminate the hassle of financing and danger of default. But cash comes with its drawbacks. Whether a cash-only deal is right for your business transaction depends on factors like terms, risk, and outlook.

Terms

Some sellers prefer cash, and will accept a significantly lower price in exchange for it, because it simplifies the transaction process. There is no worry about whether the buyer will qualify for traditional financing or the seller will need to offer financing. Payment is received in a convenient lump sum. However, even buyers capable of paying cash may be more interested in a business that offers seller financing simply because it indicates the seller has confidence in viability of the company. As always, flexibility can be a rewarding negotiation tool for both parties.

Risk

Sellers may find cash preferable because there is less risk of default should they provide financing. For an owner ready for a quick exit, cash offers a way to leave the market without looking back. But an all-cash deal can unfairly burden the buyer with all of the risk. Investing a large sum in a new venture is more hazardous in some circumstances than others, such as when customer concentration is high. Let’s say you’re buying a trucking business for sale, and that three of the company’s accounts currently represent 80 percent of its business. Losing just one client could cause your new company – along with your cash – to go under. In this case, the buyer may wish to arrange a transaction that bases part of the price on performance during the critical transition period, when danger of losing key customers is highest.

Financial Outlook

Knowledge is power. Reviewing financial documentation and researching the market outlook for a trucking business is the only way to determine whether paying all cash is worth the risk. A transport business valuation is the best way to illuminate a company’s stability and profit potential. Many buyers have successfully purchased a trucking business or limousine company for sale with cash. Still, it’s wise to investigate the seller’s motivation before making a commitment. An owner insistent on a cash deal may be in a rush to exit the market because of uncertainty about the future of their business. It pays to be cautious when paying with cash.

Filed Under: Transportation

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