Does Paying Off Small Business Debt Make It More Valuable to Buyers?.

 Today’s question comes from a recent conversation I had with a business owner who had been preparing his business for sale. He told me that, on the advice of his accountant and other professionals, he had paid off all of his business debt to make it more appealing to potential buyers. While his intentions were good, it reflects a common misunderstanding about what really makes a business valuable and attractive to buyers. https://youtu.be/pOJ3B1_K9L8 

Does Paying Off Business Debt Increase Its Value?

Let’s get to the heart of the matter: a business’s value is primarily based on its cash flow and risk profile—not its debt balance.

Think of it like this: if you were selling your house, would potential buyers care about your mortgage? Not at all. Your home’s value is based on comparable sales, location, and condition—not whether you’ve paid it off. When you sell the house, you use the proceeds to pay off any remaining mortgage.

The same concept applies to businesses. Buyers are interested in what the business earns—its free cash flow—not what the current owner owes. A business that generates $100,000 in cash flow is worth what it’s worth, regardless of any debt obligations the seller may have.

But Here’s the Twist: Debt Can Make a Business Easier to Sell

Yes, you read that right.

When a business has existing debt—like capital leases or equipment loans—these can sometimes be assumed by the buyer. That means the buyer doesn’t have to raise as much cash upfront. For many buyers, the hardest part of a deal is pulling together the financing to make the purchase.

If the buyer can assume certain obligations as part of the purchase consideration, it lightens their immediate financial burden. This makes your business more attractive and potentially easier to sell.

So, Should You Pay Off Business Debt Before Selling?

Not necessarily.

While it’s important to have clean financials and a clear picture of your obligations, eliminating all debt might actually take away some of the flexibility a buyer would have in financing the deal.

Instead of rushing to pay off everything:

• Organize and document your debts.

• Understand which ones are assumable.

• Discuss financing flexibility with your advisors.

Get Prepared Before You Sell

And remember, I work with clients around the world—Canada, USA, UK, New Zealand, Australia—so if you’re looking for one-on-one advice, I’m just a call away.

If you’re thinking about selling your business, head over to howtosellmyownbusiness.com. You can. 

Or grab my book: How to Sell my Own Business

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Cheers, and see you next time!

David C. Barnett