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What happens if I sell my business and the new owner doesn't make his payments?

I'm selling my business, but in these hard times, I'm concerned about the buyer making his payments? Will I be liable in any way after the sale if payments by the new buyer are not made?

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Answers (5)
Allan Mooney
InternetCompaniesForSale.com
Managing Director
Hennepin County, MN

Hi Eloise,

Can you clarify what kind of business you are selling? If its a business based on the web, the first thing I would personally recommend is NOT to transfer ownership of the domain/s unti or unless the final payment is made to you. Simply update the DNS for your buyer to whatever s/he requests, but limit it to just that. This assures you of keeping ownership at least of the domain, all other factors should be addressed by an experienced Attorney and/or broker.

regards,

Allan

Nov 14, 2010
Salvatore B. Urso
Florida Business Acquisitions, Co.
FL

Eloise,

I want to underscore Don's comment about having the spouse sign the personal guarantee. The Buyer may try to get out of that; beware if that is the case. I've seen some serious game being played...

Good luck!

Aug 8, 2009
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The BAF Group LLC
MD

I agree with Jason; however, I would add that your Contract of Sale should be accompanied by a Security Note, both of which should be carefully crafted by an experienced business attorney. And the Security note should not only allow you to get the business back, but also contain personal guarantees for the Buyer and his/her spouse, so that you can go after them personally, should they default. Many times, if the Buyer is not making the payments, there is nothing left to get back, so personal guarnatees are key to trying to obtain the most protection, possible.

Those personal guarantees also make the Buyer understand you are deadly serious. If they think they can simply toss the keys back in and walk away, they have little to lose. And I would say that 30% down is the absolute least you want to take, up front.

Finally, is there Real Estate? If so, I would suggest you get all of your money out of the business, and only hold the note on the Property. And you want to be the first lienholder, because if there is a bank involved, they will always be ahead of you and if there is a default, the bank will end up getting all of the money.

But if you can all of your business money out in the beginning, and then the Buyer defaults on the payements for the Property, you at least have the tangible asset of the Real Estate to re-sell.

Aug 8, 2009
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Small Business Underwriters
Founder

Assuming you are referring to a seller note, if the buyer defaulted, you would have the right to take the business back. You should secure your debt with the assets of the business (an attonorny can help you file a UCC).

Of course, you should require some level of cash upfront to ensure that even if the whole thing goes bad. 20% - 30% is typical, but get more if you can.

Best of luck!

Aug 8, 2009
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Franchise Advisory Group
PA

Eloise, are you concerned about the buyer making payments to you, or Vendors? If to you, then you can take the business back. If you are concerned about the buyer making payments to the Vendors, well that depends on the agreement of sale. If you are executing an Asset Purchase Agreement, the chances are you are not going to be liable for the Buyers non payments as of the day of closing. It might be a different story if you execute a Stock Purchase. Asset Purchase is the most common. I strongly urge you consult an attorney. Good Luck

Apr 4, 2009

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