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This article is one of a series that offers insight and guidance into the process of buying selling or valuing a business. Whether you want to buy, sell, or appraise the fair-market value of a going-concern business, these articles provide specific guidance and references to help you accomplish your goal.


All-Cash vs. Financed Business Sale Transactions

(data taken from the book "Transaction Patterns" by Toby Tatum - with permission)

The following figures are from a book by Toby Tatum, Transaction Patterns.” While Toby made the calculations several years ago for the book, we believe the information is still quite relevant – and important. The original figures were based on the BizComps database, which consisted of thousands of transactions. The book is a herculean effort on Toby’s part.

Comparison of Financed and All-Cash Transactions

Average SP/SDE for financed transactions - 2.15
Median SP/SDE for financed transactions - 1.84

Average SP/SDE for all-cash transactions - 1.84
Median SP/SDE for all-cash transactions - 1.60

SP = Selling Price
SDE = Seller’s Discretionary Earnings

As you can see, the SDE multiple for the average financed deal was 31 percent higher than the multiple for the average all-cash transaction.  Likewise, the median multiple was 24 percent higher for financed transactions than the median multiple for all-cash transactions.  How does this translate into dollars?  In a $250,000 transaction, the difference in price to a seller ranges roughly from an additional $60,000 to $75,000.

The deals financed in the above chart had an average down payment of 37 percent.  The difference in the SDE multiple between financed deals and all-cash transactions is even more pronounced if we compare the all-cash transactions to financed transactions with seller financing of 70 percent or more.  Here is that data:

Comparison of Financed (seller financing of 70+ %) and All Cash Transactions

Average SP/SDE for financed transactions - 2.31
Median SP/SDE for financed transactions - 2.03

Average SP/SDE for all-cash transactions - 1.84
Median SP/SDE for all-cash transactions - 1.60

SP = Selling Price
SDE = Seller’s Discretionary Earnings

In these financed sales, with 30 percent or less given as a down payment, the average SP/SDE was 47 percent higher than the average SP/SDE for the all-cash transactions, and the median was 43 percent higher. Taking our earlier example of a $250,000 transaction, a seller willing to accept a down payment of 30 percent or less, rather than an all-cash price, could receive roughly an additional $100,000 to $115,000.

These numbers make it readily apparent that a seller would receive a considerably higher price by using seller financing, rather than demanding an all-cash transaction. The figures above do not even include the additional interest received by the seller on the seller carry-back. This certainly presents the seller with an interesting dilemma. The seller is torn between choosing an all-cash transaction with likely a much lower price or choosing to finance the sale to potentially receive a significantly higher price plus interest, but with much less cash involved. 

All of this presents another interesting question. When the sale of a business is financed by outside sources, is an all-cash discount applied? In other words, if there is sufficient data to show that, in fact, an all-cash transaction results in a seller receiving a significantly lower price, should an all-cash discount be applied to the purchase price?

For example, a buyer makes an offer on a business and the offer is accepted. The buyer applies for an SBA loan and the loan is approved for the amount equal to the offered and accepted price. It is a “win-win” for the seller. The seller is getting the price that he or she is apparently comfortable with – and getting it all in cash.

Perhaps, a buyer who is intending to purchase a business with a SBA loan should make two offers: One offer based on an all-cash SBA loan and another offer with a bigger full price, but contingent on the seller carrying the balance. How the business is financed, whether bank, SBA or other outside financing, shouldn’t make any difference in the discount.

However, business brokers should keep in mind that when representing the seller, getting the highest price and the best deal for the seller is paramount. As we said a few paragraphs above – it is an interesting question.

If you would like to learn more about Toby Tatums the book "Transaction Patterns" please click here.

About Toby Tatum

Toby Tatum is an active business broker and business appraiser and is a member of the International Business Brokers Association from which he has earned the designation Certified Business Intermediary and he is a member of the Institute of Business Appraisers from which he has earned the designation Certified Business Appraiser.

The author is also an experienced speaker and author on topics including the selling and buying of business, business management and strategic planning. He has published articles in newspapers and trade journals, and he is a former columnist for the Reno Gazette-Journal where he wrote column about buying, selling and valuing small business. In addition to Transaction Patterns, Mr. Tatum has also authored the book, Anatomy of a Business Purchase Offer.

If you're considering buying, selling, or determining the value of a business, please take a look at some of the excellent books, reports, and software we have at Business Book Press to help you achieve success. For example:

The Business Reference and Pricing Guide is the bible of the business brokerage world. If you're a shrewd business buyer or seller, you will want this book to learn what just what the business broker knows. It will pay you big dividends throughout every aspect of the purchase and sale process. Learn more about it...

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Preparing A Business for Sale provides business owners with an understanding of the process they need to know to sell their business for the most money. Contains hundreds of little known tips, ideas and strategies to maximize the selling price of a business. Learn more about it...

Strategies for Successfully Buying or Selling a Business is our bestselling book. It has been recommended by Kiplingers Personal Finance Magazine, the BottomLine Personal Newsletter, and has been awarded the Best Business Book of the Year Award from the North American Bookdealers Exchange (NABE). Learn more about it...

Anatomy of a Business Purchase Offer provides you with all of the practical hands-on knowledge you need to make a successful purchase offer to buy a business. The author uses an actual Purchase Offer form to show you exactly what needs to be written and why! He details all of his recommendations in a line-by-line format for each and every aspect of the purchase offer. Learn more about it...

The Business Buyer's How-to Kit: We've assembled a specially-priced Kit with all of the key information you'll need to know to successfully buy a business.

The Business Seller's How-to Kit: We've assembled a specially-priced Kit with all of the key information you'll need to know to successfully sell a business.

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BBP Resources

Business Valuation Software
BizPricer software to easily, quickly, accurately, privately and inexpensively value a business.


Business Valuation Rules of Thumb
Most complete source of business purchase and sale information available. Hundreds of valuation rules of thumb.


Buy/Sell Business Process
Strategies, tips, due diligence process and insider secrets for buying or selling a business.


How to Make a Purchase Offer
Detailed process including interactive form on CD for making a successful business purchase offer.


The Resource Guide for Business Brokers
Extensive information about the business brokerage field. Includes 45 different forms on CD.


Preparing a Business for Sale
This book provides 100's of strategies and tips to increase the selling price of a business.


Business Broker Professional Starter Kit
Get started in the lucrative field of business brokerage.


Business Buyer's Kit
Everything you need to successfully buy a business. Hard copy or download.


Business Seller's Kit
Everything you need to successfully sell a business. Hard copy or download.

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