October 22, 2020

Creative Ways to Finance a Business Purchase

You’ve just walked out of a business owner’s office, who has
grown an established, profitable business that he is willing to
sell to you, for very favorable purchase terms, at a fair
price, but you have no clue how you are going to raise the
necessary capital required to complete the purchase. Sound
familiar?

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, you will quickly become a
consequential example of the old mergers and acquisition
industry adage, “No dollars, no play, no 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 company’s
money, or anybody else’s 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

* Sell revenue participation certificates (Bank collects/
disburses funds)

* 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 company receivables

* Factor 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

* Negotiate a value for a buyer’s personal check put in escrow

* 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 debt’s or liabilities

* Negotiate extended payment terms with key suppliers

* Inventory all primary materials on consignment terms

* Finance all acquisition fees involved in the transaction;
consultants, CPA, 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”. They rarely mention
however, that trying to get all parties to agree to your
finance limitations and loan terms, in rapid fashion,
simultaneously, can be hazardous to your health! It’s worth a
shot, don’t you think?

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