Buying a Business – How Much Deposit?

John Kafrouni

15 Sep 2011

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min read

How much deposit should I pay for a business?

The short answer is that it depends. The amount of deposit ultimately paid will be a factor of the buyer’s and seller’s competing interests.

Given the seller may forfeit the deposit if the buyer breaches the contract and does not complete, the buyer will want to pay the least amount of money possible especially if the cash available to them when signing the contract is limited.

On the other hand, given the seller will tie up their business for a period of time upon signing the contract and will incur cost and spend time on the buyer, the seller will require the buyer to demonstrate its genuineness and ability to complete its purchase of the business through paying a larger deposit.

So what’s usual? A deposit of approximately 5% to 10% of the sale price of the business is usual.

However, if the seller is concerned as to the genuineness of the buyer or the buyer’s ability to complete it should be more. If not, the deposit has less significance.

For example, we have recently seen a 30% deposit paid on a small $70,000 business and a 0.00003% deposit paid on a large $15 million sale. In this large sale, the sellers were very confident that the buyers were genuine and capable of completing. The $50,000 non-refundable deposit was paid simply to cover most of the seller’s legal costs in case they were wrong.

Joe Kafrouni, Legal Practitioner Director, Kafrouni Lawyers

Disclaimer

The information provided by Kafrouni Lawyers is intended to provide general information and is not legal advice or a substitute for it. Business people should always consult their own legal advisors to discuss their particular circumstances. Kafrouni Lawyers makes no warranties or representations regarding the information and exclude any liability which may arise as a result of the use of this information. This information is the copyright of Kafrouni Lawyers.

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