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?
Mark Smock is President of Business-Buyer-Directory ,the FIRST international business buyer directory of its kind. Over 30 years of "how to"; find, buy, sell or market a business expertise is offered for free at his Web site.
Full Author Profile -->
PRINT THIS
