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.
Sounds familiar?
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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 debts 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?
About the Author:
Mark Smock is President of
www.business-buyer-directory.com , the FIRST international business
buyer directory of its kind. Business Buyer Directory provides a
non-traditional means for proactive business buyers to locate businesses for
sale worldwide that meet their exact registered purchase criteria.
April 13, 2004
