Defining Goodwill
You may hear the word “goodwill” thrown around a lot, but what does it really mean? When it comes to selling a business, the term refers to all the effort that the seller put into a business over the year. Goodwill can be thought of as the difference between the various tangible assets that a business has and the overall purchase price.
The M&A Dictionary defines goodwill in the following way, “An intangible fixed asset that is carried as an asset on the balance sheet, such as a recognizable company or product name or strong reputation. When one company pays more than the net book value for another, the former is typically paying for goodwill. Goodwill is often viewed as an approximation of the value of a company’s brand names, reputation, or long-term relationships that cannot otherwise be represented financially.”
Goodwill vs. Going-Concern
Now, it is important not to confuse goodwill value with “going-concern value,” as the two are definitely not the same. Going-concern value is typically defined by experts, as the fact that the business will continue to operate in a manner that is consistent with its intended purpose as opposed to failing or being liquidated. For most business owners, goodwill is seen as good service, products and reputation, all of which, of course, matters greatly.
Below is a list of some of the items that can be listed under the term “goodwill.” As you will notice, the list is surprisingly diverse.
42 Examples of Goodwill Items
- Phantom Assets
- Local Economy
- Industry Ratios
- Custom-Built Factory
- Management
- Loyal Customer Base
- Supplier List
- Reputation
- Delivery Systems
- Location
- Experienced Design Staff
- Growing Industry
- Recession Resistant Industry
- Low Employee Turnover
- Skilled Employees
- Trade Secrets
- Licenses
- Mailing List
- Royalty Agreements
- Tooling
- Technologically Advanced Equipment
- Advertising Campaigns
- Advertising Materials
- Backlog
- Computer Databases
- Computer Designs
- Contracts
- Copyrights
- Credit Files
- Distributorships
- Engineering Drawings
- Favorable Financing
- Franchises
- Government Programs
- Know-How
- Training Procedures
- Proprietary Designs
- Systems and Procedures
- Trademarks
- Employee Manual
- Location
- Name Recognition
As you can tell, goodwill, as it pertains to a business, is not an easily defined term. It is also very important to keep in mind that what goodwill is and how it is represented on a company’s financial statements are two different things.
Here is an example: a company sells for $2 million dollars but has only $1 million in tangible assets. The balance of $1 million dollars was considered goodwill and goodwill can be amortized by the acquirer over a 15-year period. All of this was especially impactful on public companies as an acquisition could negatively impact earnings which, in turn, negatively impacted stock price, so public companies were often reluctant to acquire firms in which goodwill was a large part of the purchase price. On the flip side of the coin, purchasers of non-public firms received a tax break due to amortization.
The Federal Accounting Standards Board (FASB) created new rules and standards pertaining to goodwill and those rules and standards were implemented on July 1, 2001. Upon the implementation of these rules and standards, goodwill may not have to be written off, unless the goodwill is carried at a value that is in excess of its real value. Now, the standards require companies to have intangible assets, which include goodwill, valued by an outside expert on an annual basis. These new rules work to define the difference between goodwill and other intangible assets as well as how they are to be treated in terms of accounting and tax reporting.
Before you buy a business or put a business up for sale, it is a good idea to talk to the professionals. The bottom line is that goodwill can still represent all the hard work a seller put into a business; however, that hard work must be accounted for differently than in years past and with more detail.
Copyright: Business Brokerage Press, Inc.
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Should You Offer Seller Financing When Selling Your Business?
By Troy Frank, Owner — Indiana Equity Brokers
Estimated read time: 8 min
The short answer: Offering seller financing when selling a business typically results in a higher sale price — research shows seller-financed deals close at 20–30% more than all-cash transactions. The seller carries a promissory note for a portion of the purchase price, typically at 6–10% interest over 3–7 years. The risk is real: if the buyer defaults, the seller may not recover the full amount owed. But for most Indiana sellers, the combination of a higher price, tax deferral benefits, and a larger buyer pool makes seller financing worth serious consideration.
A seller walks away from the closing table with a check. That’s how most business owners picture the sale of their company. All cash, clean break, done.
The reality is that all-cash deals are less common than sellers expect — and sellers who insist on them often leave significant money on the table. Seller financing isn’t a consolation prize. When structured correctly, it’s a tool that gets deals done at better prices with more qualified buyers.
This article covers how seller financing actually works, what terms are typical in Indiana Main Street transactions, what sellers need to protect themselves, and when seller financing makes sense — and when it doesn’t.
What Seller Financing Is (and Isn’t)
Seller financing means the seller agrees to accept part of the purchase price over time rather than all at closing. The buyer signs a promissory note — a legal agreement to repay the seller in installments, with interest, over a defined period.
The seller is not a bank. They’re not underwriting risk the way a commercial lender does. But they are extending credit, and that comes with real obligations on both sides.
What seller financing is not: a sign that the seller is desperate or that something is wrong with the business. Sellers who make that assumption often kill deals that would have closed well.
In fact, buyers sometimes view a seller’s refusal to offer any financing as a yellow flag — the reasoning being that a seller truly confident in the business’s cash flow should have no problem carrying a note. That logic isn’t always fair to sellers, but it’s a real dynamic we see at the table.
The Numbers: Why Seller-Financed Deals Close Higher
The data on this is consistent. Businesses sold with seller financing command 20–30% more than comparable businesses sold for all cash.
There are two reasons for this. First, seller financing expands the buyer pool. More buyers can participate when they don’t need 100% of the purchase price at closing. More buyers means more competition, and more competition drives price up.
Second, a seller who carries a note is signaling confidence. Buyers read seller financing as the seller’s vote in favor of the business’s future performance. That confidence has value — and buyers are willing to pay for it.
The old stat you may have seen — sellers receive approximately 86% of asking price with terms vs. about 70% for all-cash — reflects the same principle. When sellers offer flexibility, they get paid better.
Typical Seller Financing Terms in Indiana
There’s no universal standard, but here’s what we typically see on Main Street transactions in Indiana:
Down payment: Most sellers want a minimum of 50% down at closing, with the remainder financed by a seller note. Some sellers go lower — 30–40% down — when the business is strong and the buyer is well-qualified. Going below 30% down is uncommon and generally only works when paired with SBA financing.
Interest rate: Seller notes typically carry rates of 6–10%. The rate reflects the risk level — a well-qualified buyer with strong industry experience and a clean credit profile might negotiate toward the lower end. A buyer who’s newer to the industry or carrying more financing might see a higher rate. In the current rate environment, 7–8% is common.
Term: Most seller notes run 3–7 years. Shorter terms mean faster repayment and less ongoing exposure for the seller. Longer terms mean lower monthly payments for the buyer, which can help cash flow in the early years when the business is transitioning. Five years is a common middle ground on Main Street deals.
Balloon payment: Some seller notes amortize fully over the term. Others are structured with a balloon — a lump sum due at the end of the term. Balloons can be useful when the buyer expects to refinance through a bank after a few years of operating history.
Seller Financing Alongside an SBA Loan
Many Indiana acquisitions involve a combination of SBA financing and a seller note. This is one of the most common deal structures we work with.
When SBA financing is involved, the seller note must be placed on full standby during the SBA loan period. That means the seller cannot receive repayment on their note until the SBA conditions are met — typically until the SBA loan is paid in full or a certain period passes.
This is a deal point that surprises some sellers. You carry a note, but you may not see payments on it for years. The trade-off is that SBA financing allows the buyer to put down as little as 10% of the total purchase price — which dramatically expands your buyer pool and, as discussed, tends to drive the final price up.
For sellers considering a combined SBA-plus-seller-note structure, our detailed post on how SBA loans work for business acquisitions in Indiana walks through the mechanics of how these deals are assembled.
How Sellers Protect Themselves
The most common seller fear about financing: the buyer stops paying. It happens. Here’s how to protect yourself.
Secure a UCC Filing
A Uniform Commercial Code (UCC) filing is a legal notice that the seller has a security interest in the business assets. If the buyer defaults, the seller has a documented claim against the assets — equipment, inventory, accounts receivable — that can be enforced. A UCC filing is standard on seller-financed transactions and should be non-negotiable.
Require a Personal Guarantee
The promissory note should be personally guaranteed by the buyer, not just by the business entity. This means if the buyer defaults, you can pursue their personal assets — not just the business’s. This is a meaningful protection, especially if the buyer has personal real estate or retirement savings.
Vet the Buyer Before You Agree
Seller financing isn’t for every buyer. Before agreeing to carry a note, look at the buyer’s relevant experience, credit history, and available capital. A buyer who has operated a similar business, brings strong industry knowledge, and has financial reserves beyond the down payment is a materially lower risk than one who doesn’t.
This is where working with an experienced broker matters. At Indiana Equity Brokers, we qualify buyers before they see confidential financial information. By the time a seller is reviewing an offer, the buyer has already been vetted. That reduces the pool of buyers who reach the offer stage — but it dramatically increases the quality of the ones who do.
Structure a Right of Recourse
Your promissory note should include clear default provisions: what constitutes a default, how much notice the buyer gets, and what the seller’s remedies are. Ideally, a default allows you to accelerate the note (call the full balance due) and, if unpaid, reacquire the business assets. Have your transaction attorney draft the note — not a form you found online.
The Tax Angle: Installment Sale Treatment
One underappreciated benefit of seller financing is the installment sale tax treatment available under IRS rules. When you sell a business and receive payments over multiple years, you can report the capital gain proportionally — as you receive each payment — rather than recognizing the entire gain in the year of sale.
This can meaningfully reduce the tax hit in the closing year, especially for sellers in higher income brackets or those who have other significant income in the year of sale. Spreading the gain over 3–5 years can keep you out of the highest marginal brackets for each of those years.
This isn’t a reason to carry a note you’d otherwise refuse. But it’s a real benefit worth discussing with your CPA before you decide whether to push for all cash or accept terms. In some cases, an installment sale actually puts more money in your pocket after taxes than an all-cash deal at the same gross price would have.
For further reading on the IRS installment sale rules, the IRS publication on installment sales (Publication 537) provides the authoritative guidance.
When Seller Financing Doesn’t Make Sense
Seller financing isn’t always the right call. A few situations where it may not make sense:
You need the cash at closing. If you’re funding a retirement purchase, paying off debt, or have another specific need for the full proceeds, structuring a note creates complications. Know what you actually need from the sale before the negotiation starts.
The buyer is underqualified. If a buyer has minimal industry experience, limited personal capital, and needs seller financing to get to the minimum down payment — that’s a risk profile that may not be worth carrying. A buyer who struggles to operate the business is more likely to default.
The business has declining cash flow. Seller financing is partly a bet on the business’s future performance. If you’re carrying a note on a business with shrinking revenue or increasing costs, that note is only as good as the business’s ability to service it. If the trajectory isn’t strong, price and terms need to reflect that risk.
Deal structure is one of the most important — and most underappreciated — variables in getting a business sold at the best possible price. Our post on how deal structure affects what sellers actually keep gets into the specifics beyond just seller financing.
Frequently Asked Questions
What is seller financing in a business sale? Seller financing means the seller accepts a promissory note for part of the purchase price instead of receiving all cash at closing. The buyer repays the seller directly over a set term — typically 3 to 7 years — at an agreed interest rate. Seller financing is common in small business transactions and is not a sign of a distressed deal. It’s a standard tool that expands the buyer pool and often results in a higher final sale price.
What interest rate should I charge on a seller note? Seller notes on business sales typically carry interest rates of 6–10%. The rate reflects the buyer’s risk profile — experience, creditworthiness, and available capital — rather than market benchmark rates alone. In the current environment, most Indiana Main Street seller notes are priced at 7–8%. Your attorney or broker can help you determine a rate appropriate to the specific buyer and deal.
What happens if a buyer defaults on seller financing? If a buyer defaults on a seller note, the seller can accelerate the note (demand full repayment immediately), pursue the buyer’s personal assets if a personal guarantee is in place, and potentially reacquire the business assets through a UCC filing. The exact remedies depend on how the note and security agreement are drafted. This is why working with a transaction attorney — not a template — is essential when structuring a seller note.
Do I have to put my seller note on standby if the buyer uses SBA financing? Yes. When an SBA 7(a) loan is part of the deal, the SBA requires any seller note used as part of the buyer’s equity injection to be placed on full standby — meaning the seller cannot receive payments on the note until the SBA loan conditions are satisfied. This is non-negotiable under current SBA guidelines. The standby period can last until the SBA loan is paid in full or a defined period passes, depending on how the loan is structured.
Are there tax benefits to offering seller financing? Yes. Under IRS installment sale rules, sellers who receive payments over multiple years can report their capital gain proportionally as they receive each payment, rather than recognizing the full gain in the year of sale. This can reduce the tax liability in the closing year and may keep sellers in lower marginal brackets over several years. The benefit varies based on the seller’s overall income situation — consult a CPA before deciding on deal structure.
Is Seller Financing Right for Your Deal?
For most Indiana sellers, the answer is yes — at least partially. A seller note of 10–30% of the purchase price is standard on Main Street transactions, and refusing to offer any terms often costs more in final price than the note would have paid in interest.
The key is structuring it correctly: the right term, the right rate, a personal guarantee, a UCC filing, and a clearly written promissory note drafted by an attorney who works on M&A transactions.
If you’re considering selling your Indiana business and want to understand how deal structure — including seller financing — affects your actual net proceeds, a confidential conversation with Troy Frank costs nothing and usually takes about 20 minutes. Indiana Equity Brokers has closed more than 884 Indiana transactions and can walk you through how comparable deals in your industry have been structured.
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Selling a Business? Be Aware of These Four Potential Issues
We’ve outlined below a few unexpected aspects of the business sale process that can pop up. Sometimes they severely impact the turnaround time of a sale. But if you can understand these potential issues better, you will be better prepared to try to circumvent them.
1. Do You Have Time on Your Side?
It’s helpful to use an intermediary who will assist with the filtering of prospects vs. “suspects.” However, the inclusion of yet another party, in addition to both the business seller and potential buyers, increases the amount of time required to navigate the process.
Sellers are typically unaware of the time and documentation needed to compile the required Offering Memorandum. Once completed, the seller must provide both the intermediary and potential buyer more time to review and propose meetings and pricing. In the interim, owners are faced with the challenge of keeping their business thriving.
2. Trying to Do Too Much
It’s not surprising when a company owner is also its founder that individual is typically used to making all of the decisions. That’s why business owners in the midst of selling will soon find themselves challenged with the desire to fully be a part of both the selling process and the running of the business.
Delegation to someone else, such as the Sales Manager, can be truly invaluable. Think of your top people as extremely valuable resources. They may have first-hand knowledge regarding additional concerns such as competition and potentially interested acquirers. Bringing in trusted employees to be part of the sales process can be tremendously beneficial.
3. Delays Due to Stockholders
When mid-sized, privately held companies are supported by minority stockholders, these individuals must be included in the selling process—however small their share may be. The business owner will need to firstly obtain their approval to sell by using the sale price and terms as influencers. Of course, issues such as competing interests, pricing disagreements, and even inter-family concerns may cause conflict and further delay the process.
4. Money Issues
Once sellers decide upon a price that they would like to see, it is sometimes difficult for them to accept or even consider anything less. After all, a business owner likely created the company and may have a strong emotional attachment.
Another factor that often interferes with a successful sale occurs when sellers instantly turn down offers because they don’t meet with their desired asking price.
That’s when the intermediary can often come in to salvage the deal. A business broker often serves as a negotiator. He or she can work out a deal that is structured in a manner that works for both sides.
Copyright: Business Brokerage Press, Inc.
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Your Company’s Undocumented Worth
The valuation is a major factor that influences the overall selling price of the property. Business appraisals are based upon a multitude of criteria and indisputable records such as comparables, projections, discount rates, EBITDA multiples, and more.
While the appraiser may have all the information he or she needs, the business elements might be overlooked. That’s why it’s extremely helpful for business appraisers to first grasp the purpose of an appraisal prior to getting started. Unfortunately, the appraiser is often unaware of additional considerations that may enhance or even devalue a business’ overall worth.
Is There Unwritten Value?
Business owners generally agree that prospective buyers are mostly looking for quality in depth of management, market share, and profitability. Though undoubtedly more subjective than documentation, figures, and calculations alone, information regarding key business elements such as market, operations, post-acquisition, value drivers, and fundamentals is highly valued to potential buyers.
Here are some questions to consider regarding a couple of these crucial elements:
Is there an abundance of market competition?
Does pricing reasonably align with the demographic?
Are the company goals consistent with advancing technology?
Are there various and/or global means of reach and distribution?
Does the business have more potential beyond a niche?
What’s the company’s competitive advantage?
What are the strengths and weaknesses of its competitors?
Is there a great deal of alternative technologies?
Are there various vendors?
Is the company’s location convenient to its target audience?
Increased Success & Valuation
Successful businesses thrive due to company-wide values and consistent customer-centric efforts. In his book The 100 Absolutely Unbreakable Laws of Business, Brian Tracy summarizes this as “a company-wide focus on marketing, sales and revenue generation. The most important energies of the most talented people in the company must be centered on the customer. The failures to focus single-mindedly on sales are the number one causes of business failures, which are triggered by a drop-off in sales.”
Tracy continues by pointing out that trends may be the most pivotal consideration and bottom-line contributor to any given company’s success and, therefore, valuation. For 2017, projected trends include the increased use of video marketing, crowdfunding as a source of product validation, nutrition and fitness tracking products, the use of e-commerce, and the acquisition and training of remote employees.
Understanding Trends
Start-up companies are likely practicing as many current trends as possible within their limited funding in an attempt to establish market share, while mature companies are hiring millennials to keep their business hip to those same trends in an effort to protect their existing share. Business owners would benefit from studying and ultimately executing these current trends, as well as from acknowledging the successes and mistakes of their competitors.
Tracy suggests that daily conversations that encompass problem-solving, decision-making, and team collaboration are pivotal factors in making a company successful. And those performing all of these necessities? As Tracy reiterates, top companies have the best people.
Copyright: Business Brokerage Press, Inc.
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Service Businesses Perform Highest When It Comes to Sales
Recently, Business Brokerage Press performed a survey of brokers across the country to see what sells at the highest rate, and what they discovered was very interesting. Retail business sold at 17%, food and drink related businesses at 14%, service oriented businesses sold at 25%, auto related businesses sold at 9%, manufacturing businesses sold at 16% and distribution businesses sold at 11%. Businesses labeled as “other” sold at 5% and professional practices at 4%.
What is a Service Business?
Looking at this gathered information, it is clear that “service type businesses” are very hot and doing quite well. The range for what is considered a service type business is, in fact, rather broad. It encompasses everything from a dry cleaner and hair stylist business to a massage therapy chain or dental practice. Just so long as a business is providing a service and doesn’t fall into another category, it falls under the “service oriented” banner.
Food and Drink Businesses
One of the next key nuggets of information from the survey is that food and drink businesses tend to perform quite well too. Food and drink businesses range from bars to sit down restaurants or fast food establishments. The simple fact is that people need to eat, and this truth is certainly reflected in the strong performance of food and drink businesses. The need for certain types of businesses may change with changing times and changing technologies, but food and drink remains a staple.
Eating, for example, isn’t a trend and the tradition of visiting a local bar or restaurant is very established. In fact, some of the oldest continuously operating businesses in the world are bars and restaurants. Those looking for a business that has some degree of built in stability and is likely to be at least partially immune to emerging trends will be well advised to consider food and drink businesses.
The Mindset of Today’s Buyers
When you are considering what types of businesses that buyers may find interesting it is important to pause and reflect on the likely profile of prospective buyers. Today, a large percentage of prospective buyers are well educated and bring a lot of experience to the table. In short, they are savvy and know what they want.
This combination of education and experience also means that they are open minded and potentially flexible regarding the type of businesses that they will consider. Most prospective buyers will, in fact, be open to a wide array of potential options. At the end of the day, the most important factor for most prospective buyers will be whether or not a business is profitable.
The majority of prospective buyers will not be making an emotional buy. Instead, due to their combination of experience and education, they are very likely to focus on profitability above all else. Of course, this fact underscores the importance of having your business ready to sell long before the first prospective buyer sees it.
Copyright: Business Brokerage Press, Inc.
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