Cashing in Your 401k to Buy Your Business

We are in the process of doing a deal that is complete except for one important piece. The buyer has not produced the agreed amount of money for the down payment. The deal was agreed to by both parties and the closing date was set for May 1st. Closing dates are like construction projects in that they often slip for many reasons.

The market has been down but heading upward. The buyer was trying to time the market so that he had more money in his 401K account. He delayed 30 days past the closing and there was still no money. We help the seller in these situations and work with the buyer to figure out why the money isn’t moving to fund the deal. When we realized that the buyer was playing the market, we were required to give a one week extension and if that new date was missed the seller would be able to look for a new buyer.

The buyer really wanted to buy this business and started the process to liquidate his 401K funds. He then found out that it can take weeks for the funds to be available. The deal ended up moving forward because the buyer had his broker provide proof to the seller that the funds were being liquidated.

The moral of the story is, if you are the buyer, you need to understand what it will take to produce the money for the down payment.