David C Barnett Small Business and Deal Making M&A SMB Don't Buy Business Notes with David Barnett
Oct 30, 2025
David C. Barnett, a small-business deal expert and author, sheds light on the pitfalls of investing in business notes. He highlights the risks of reliance on cash flow and goodwill rather than tangible property. Topics include the complexities of lien priority, non-compete enforceability, and the importance of thorough due diligence. Barnett also warns about misleading financial statements and the necessity of industry knowledge to mitigate fraud. Plus, he shares insights on networking for private deals and the dangers of the secondary market.
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Business Notes Backed By Goodwill
- Business notes are typically backed by goodwill, not tangible collateral.
- Goodwill is ethereal and much harder to recover than real estate after default.
Insist On Reporting And Active Oversight
- Require reporting and stay involved if you hold a seller note on a business.
- Act as a coach and intervene early when you spot trouble to protect your investment.
Secondary Buyers Must Be Operators
- Buying a secondary market business note requires you to be able to run or salvage the business.
- Most secondary buyers lack industry-specific skills, making these notes riskier than they appear.
