I'm getting ready to list my business and have about $45k in outstanding vendor debt spread across 3 suppliers. My accountant says it's not a blocker but I'd rather clean it up before going to market. Has anyone here negotiated payoffs or worked out payment plans specifically to make their books look better for buyers? I'm not trying to hide anything, just want a cleaner balance sheet. Any practical advice would help.
Vendor Debt
How do I clear vendor debt before I sell my business?
What are the terms on the debt? Are any of them past due or in collections? That changes the advice a lot.
I wouldn't rush to pay it all off. Buyers expect some payables in a normal business. If you clear everything, they might wonder why cash is so low. Just make sure nothing is past due and get a clean statement from each vendor.
I sold a small manufacturing shop two years ago. Had about $30k in vendor debt. What worked for me was reaching out to the two largest vendors, and asking if they'd settle for a lump sum at a discount. One took 80 cents on the dollar, the other wouldn't budge. I paid that one in full and got a letter confirming zero balance. Buyers liked seeing those letters.
Yeah the the letters matter. A payoff letter from each vendor is worth more than just a zeroed out ledger in your own accounting software.
Has your accountant actually said the debt is a problem? Mine told me the same thing — not a blocker — and I ignored it and spent mnths fiddling with payables instead of actually prepping the sale. You might be creating work for yourself.
I'm on the other side of this sometimes, I review small business acquisitions. Honestly a chunk of vendor debt is normal. What I care about is whether it's current, whether any vendor has put you on credit hold, and whether there are personal guarantees that would survive the sale. The guarantees are the part sellers forget about.
That's a good point about guarantees. I had one with a packaging supplier that I had to get released separately. Took a few weeks.
Also check whether any of the debt is already factored or assigned. That's a mess to unwind mid-deal.
OP haven't heard back — did you check the terms yet? Past due vs current is the whole ballgame.
If you do negotiate payoffs, get everything in writing before you send a dollar. Verbal agreements on debt forgiveness are worthless and I've seen sellers get burned when the the vendor later claims the discount was a prepayment credit or some other nonsense.