CREATIVE WAYS TO FINANCE A BUSINESS PURCHASE
Pursuing a viable company to purchase is a very competitive process. Money is often the most critical weapon a business buyer has to differentiate themselves from all the other business buyers who are also fortunate enough as you to have found the same great business acquisition candidate as you have. If you don t have the funds to compete in the business acquisition market place, there is a great possibility that you will not seal the purchase deal.
Most seasoned business buyers will tell you that they are not always looking for a deal in a business acquisition, but to purchase a company for reasonable terms that offers a consistent, high return on investment, with little or no buyer competition.
Astute business buyers focus on leveraging their investment dollars first and foremost, seeking to acquire controlling interest in a viable company for the least amount of their own money. Business purchase terms can be very diverse, as can means to finance a deal. Terms of purchase are often perceived by both the business seller and buyer as the most critical link to their eventual purchase agreement, much more so than just purchase price.
Sometimes You Have to Get $ Creative
When you find an extraordinary business acquisition opportunity that initially exceeds your current financial wherewithal, you need to be get very creative and resourceful, very quickly, to be able to achieve your desired outcome. Again, your objective is to negotiate and finalize a reasonable purchase contract with the business seller, using as much of his or his companys money, or anybody elses money you can secure and still maintain management control of the company post purchase.
There are four fundamental areas a savvy business buyer can pursue to attempt to get the necessary funds to finance controlling purchase of a profitable company acquisition:
Business Buyer Personal Funds:
| Cash Savings
| Liquidate paper investments
| Negotiate a private party loan
from a friend or family member
| Advances from personal credit
cards or negotiated delays in outstanding credit card balance payments
| Obtain a bank loan secured with
high value, personal assets, like your home or car(s)
| Negotiate payment delays on buyer
s current outstanding bills
| Barter or trade significant
equity positions in personal assets for required business assets | |
Take on Partners:
| Aggressively pursue a minority
ownership partnership with the current owner
| Bring in a trusted new partner
sell him shares in the company
| Sell shares of the company to
existing employees
| Sell shares of the company to
existing company vendors or suppliers
| Sell shares of the company to
other business buyers | |
Pursue Every Funding Source:
| Include, increase, the earn out
portion from the company s future earnings
| Bank loan to the business
| Asset loan to the business
| Loan from current business
supplier(s) or vendor(s)
| Finance or sell off all existing
excess inventory in the company
| Sell high value assets and lease
them back or finance them
| Sell high value equipment
outright and time share or borrow other like equipment
| Accelerate receipt of payment on
company receivables
| Factor receipt of payment on
company receivables
| Seek customer deposits against
existing orders
| Lease a high value asset and get
advance lease payments from the lessee
| Sell excess or low use assets
| Sell the company customer list
| Sell on-business-premise
concession space
| Sell the parking lot land
| Sell trademarks or unused
licensing rights
| Sell or sublet the part of the
business building and get advance payments
| Sell junk or obsolete inventory
accumulated for cash | |
Reconfigure Outstanding Business Purchase Balance Arrangements
| Pursue as much seller financing
as possible
| Defer the down payment portion as
long as you can
| Assume more or other liabilities
not originally in the purchase contract
| Let the seller retain all
receivables
| Discount liabilities due the
company for immediate cash payment
| See if the business intermediary
will finance their transaction commission
| Assume seller's personal debts or
liabilities
| Negotiate extended payment terms
with key suppliers
| Finance all acquisition fees
involved in the transaction; consultants, Accountants, Lawyers etc | |
Professional business buyers who have faced a challenge like this in their career will tell you that it is no fun being in a situation like this, but they'll always refer to it as worth it when, over time, the anticipated business performance came to fruition and more than justified the initial level of financial risk leveraged to do the deal .
If we can assist further, please email TotalAccounting as follows:
BACK TO KNOWLEDGE AND INFORMATION CENTRE HOME PAGE