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BUSINESS PURCHASE TRANSFER FINANCING
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Financing & Cash flow are the biggest issues facing business today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
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EMAIL - sprokop@7parkavenuefinancial.com
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Business purchase finance in Canada. When it comes to acquisition financing for new or existing businesses the question of financial resources and strategy becomes, very quickly, top of mind. But how in fact do you pay for/ finance such an acquisition for that target company in Canada. While large transactions in Canada can utilize private equity or ' ' VC's that type of solution is not available for acquisitions in the SME sector. Let's dig in.
IDENTIFYING THE TARGET ACQUISITION AND ASSESSING VALUATION AND OTHER KEY ISSUES
We're of course assuming you have in fact identified your target already, having properly focused on value, price, and giving thought to all the legal, accounting, tax and oh yes, ' people issues' involved in your purpose. Those are important, but today we're focusing on financing that challenge.
Although it's certainly possible to purchase and finance a non-incorporated proprietorship or partnership we'll focus today on financing a legal entity... i.e. the corporation, when it comes to business acquisitions.
3 KEY ISSUES ON FINANCING STRUCTURE
If we had to sum up the key issues around the whole financing structure it would come down to:
Bank and Commercial financing debt and credit lines
Any financing the vendor is prepared to provide
Owner subordinated debt
HAVE AN CANADIAN BUSINESS FINANCING ADVISORY IN PLACE
The letters in T E A M are very appropriate here as they can also stand for - Together Everyone Achieve More. So it's highly recommended your team consists of your own partners and management, but also good advice from your lawyer, your accountant, your personal or corporate banker, and probably an experienced Canadian business financing advisor to help finance an acquisition.
And it just might be that advisor can introduce you to even better/smarter lawyers, bankers, accountants, etc - After all, that's his or her business. Their advice is worth a million, but of course, ultimately it's your call.
IDENTIFYING 6 KEY ISSUES ON THE BALANCE SHEET
A solid place to start in your financing structure work is to simply take the balance sheet and divide all assets and liabilities into the following categories”
Working Capital
Real Assets
Intangible Assets (may or may not have value to your deal)
Creditor Debt - i.e. suppliers
Lender Debt
Owners Investment /Equity
Just simplifying the balance sheet in this matter allows you at a visual glance to determine where the money is going to come from, where it's coming from now, and how some of the relationships around that flow of funds changes. In many cases the purchase price can revolve around your ability to put a leveraged buyout in place, emphasizing, even more, the necessity to understand assets and the balance sheet.
EXAMINING FINANCIAL RATIOS / RELATIONSHIPS!
By that last comment, we're really focusing on the concept of what lenders call ' ratios'. We have always called them relationships at 7 Park Avenue Financial . Quick example: The current business might have, for example, 30% of long term debt. Under the final picture, that number might change drastically - but if, in the case of long-term debt it increases a lot your ability to either properly finance the purchase, or survival might be at risk!
DON'T FORGET CASH FLOW!
It's safe to say also that those relationships we've talked about above are a little different for larger deals as opposed to buying a business in the franchise or SME sector. Your goal, along with your advisor team, is to sort out a financing package that addresses assets... and... CASH FLOW. Assessing cash flows will allow you to command the best interest rate possible in either traditional financing or alternative finance methods.
In some cases sell financing/take back may play a key role in funding your purchase.
ADDRESSING GROWTH ISSUES IN BUSINESS ACQUISITION
Never assume you will get the financing need-based either just on assets or just on cash flow. If you have a profitable company that’s growing quickly that can certainly help with a lot of the financial challenges. While growth sometimes hides some business weaknesses it usually does appease your lenders and bankers to a certain degree. Financing a slow-growth company that has challenges might have made your offer price attractive, but you are certainly at risk when it comes to cash flow, debt, and asset replacement needs.
CONCLUSION
Can you avoid the ' Crisis' part of any acquisition financing for buying another company? No guarantees for sure, but solid advice and analysis will eliminate a lot of that risk. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor for the business purchase finance you need.
Click here for the business finance track record of 7 Park Avenue Financial
Stan Prokop
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