How to Finance a Business Purchase

Steps

1. Use Personal funds and borrow
   • These can include: personal cash savings; loans from family and friends; selling personal shares or other investments; taking advantage of the numerous credit card deals that offer 0% balance transfers and free credit periods. You could obtain a secured loan from a bank or building society/ finance company (up to £250k). Alternatively, you could trade or barter third party part-ownership of personal assets for share of new business
2. Find Business Partners.
   • First look at the existing owner of the business. Rigorously hound the buyer to retain a minority equity stake. Persuade a new partner to give you funds in return for an equity stake. Talk to employees of the target business - offer them the opportunity to own part of the business. Approach suppliers and customers of the target company and offer them a stake.
3. Search for more sources of funding.
   • Negotiate to reduce the up-front cash amount payable for the business and extend the earn-out amount or period.
   • Take out or increase the target company's bank loan.
   • Take out or increase your own company's bank loan.
   • Look at asset lending for the business.
   • Address short-term cash shortage with a mezzanine finance deal. Does the company have surplus or obsolete stock? If so, look at selling it off.
   • Does the company have assets that are under-utilised or not used at all? Sell them off.
   • If the company has high value assets or equipment, sell them and lease them back. Speed up company receivables.
   • Look at factoring as an option to release cash.
   • Approach a business list broker and rent out prospect and customer lists to non-competing 3rd parties.
   • Ask for deposit payments against existing customer orders.
   • Are the business premises too large? If so, consider subletting or selling unused buildings/ floors/ rooms/ desks or other space.
   • Let or sell on-premise concession space.
   • Let or sell any unused parking spaces.
   • Are any trademarks sitting idle that could be sold on or granted as licenses?
4. Deal and Finance Structuring.
   • Try and obtain financing from the vendor.
   • Postpone the initial business purchase payment for as long as possible. Assume additional liabilities not mentioned previously by the seller.
   • Approach company suppliers and negotiate longer payment terms with major suppliers.
   • Change inventory procedures to consignment terms.
   • Offer a discount to debtors if they pay up immediately.
   • Add in all professional fees to the financing deal.
   • Leave the debtor's ledger to the vendor.
   • See if the business broker will finance his commission fee.

Tips

• There is no argument that negotiating finance and deal terms can be an arduous and time-consuming process. However it can make all the difference in securing the business, and reduces the personal onus and risk to the purchaser. It is very satisfying when the business performs over the following few years and justifies the level of financial risk inherent in the initial leverage.

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