Down Payment Norms

By By Glen Cooper, CBI, CBA, BVAL

Down Payment Norms

How much money does a buyer need to buy a small business? There is no single answer, but there are norms.

The minimum cash needed today is about $100,000. To buy a business that makes at least one living wage for an owner/operator, this is the figure we use. Some is for the down payment. Some is for working capital.

A common ‘rule of thumb’ is 1/3 from the buyer, 1/3 from the seller and 1/3 from a lender. If a business grosses $500,000 and has cash flow of 10% ($50,000) to an owner, it might sell for $150,000 plus inventory. If the down payment is $50,000 (or 1/3), there might still be another $50,000 required for the purchase of inventory and for working capital, totaling $100,000.

Our typical listing is $750,000 and requires $250,000 down, plus inventory purchase and working capital, so you can see the numbers get bigger very quickly. Larger transactions don’t fit any mold at all. Many are ‘all cash.’ Some involve little cash and the exchange of marketable securities.

See also Financing A Business.

Headlines

  • CHOOSING THE RIGHT BUSINESS BROKER

    Choosing a business broker to sell your business is similar to choosing a defense lawyer to go to trial. A lawyer can’t guarantee a verdict, but choosing the best one for the job significantly improves your chances of success. Selling a business is difficult, takes time and can be stressful! Choose a competent broker who you can trust to represent your best interests.

Subscribe to Our Newsletter