When business owners offer seller financing to internal buyer successors, there are many risks involved for getting full payment of the financing provided. Therefore, one of the essentials that should be a mandatory requirement as part of seller financing is the establishment of an advisory board to oversee and protect the seller’s “investment”.
Just as bank lenders have ground rules for making loans so should business owners as lenders. Banks have advantages if they make bad loans. Specifically, reserves are set aside for losses and government backing is available in the form of rescue bail outs. However, the business owner’s only “out” is getting hung out to dry if the financing goes bad. Therefore, it’s vital for the business owner to stay involved as mentor, counselor, advisor and overseer when providing seller financing to buyers. The advisory board is a meaningful vehicle for continuing involvement.
An advisory board should not be confused with a board of directors. Unlike directors, advisory board members have no authoritative or fiduciary responsibilities. However, it is a means for the business owner to be alerted about and offer solutions for issues that may potentially jeopardize his or her financing interests.
Forming an advisory board should begin with the end objectives in mind. The main objective for the business seller is to remain involved until the financing obligation is completed or at least until payment is comfortably ensured. By remaining involved with the business, the seller can provide experienced transitional guidance and strategic planning input for the internal successors in a manner that’s win-win for both the business seller and buyer.
Please CLICK HERE to contact me directly for answers to questions you might have about establishing an advisory board or to set up a confidential, no cost, no obligation, initial telephone assessment of your particular business ownership status. Learn from my experiences and expertise for guidance, which may be beneficial for you, your family, and your business.