What is the standard to buyout a seller financed note?
The man I purchased my business from wants me to buy him out early. I bought the business is 2008 on a five-year contract at 7 percent. He wants me to pay him all of the principle in 2009. I understand that contracts are usually purchased at a discount. What is the standard operating procedure on this type of buyout?
If your contract is for five years, legally, you are not obligated to pay him early. However, if the previous business owner would like his principle early, you should find out the going rate for your business today by talking to bankers and attending industry conferences.
You can also research public companies in your industry. Chances are it is going to be much more discounted and in your favor. It is very difficult to figure out a realistic evaluation in this market. It is a completely different market from 2008. Most businesses are down over 40 percent and the S&P 500, which was down 37 percent last year and nearly 3 percent this year. If raising cash is not an issue, negotiate hard.