Business Acquisition Financing. 3 Things You Never Should Forget In Funding Your Purchase

When it comes to business acquisition financing in Canada there's several myths and

things you should never forget when arranging and funding your purchase. Let's try and cover off 3 basics, and we're going to strive to be fairly non technical in nature... which is a good thing, right?

First point is simple the value and valuation. While a lot of people may tell you it's all about the ' future cash flows / earning ' of the business that might not necessarily always be the case. Part of the challenge here is that the formulas around this calculation probably work best with larger public companies where you probably have a better chance of predicting the future. So our basic caution is that as a buyer you should incorporate other factors and info into your final value decision; and make sure there are at least some cash flows today. not just ten years from now!

Point number 2 is simply the concept around the assets of the business. These days they can be a combination of hard and soft assets and you can't necessarily treat them the same. So the take away here is that each asset should be analyzed and value in the context of what they do for the business.

When we talk to clients who feel they have ' overpaid' for businesses they purchased and are now running it often becomes very clear that they never looked at each asset ' under the hammer'. That's the term for the idea of liquidation and the value of the asset that it might bring when financed. A good example might be the balance sheet accounts of inventory and accounts receivable. Are they really ' liquid ' and ' moving' respectively, or are they in fact uncollectible and waiting to be written off... respectively!

In general it is safe to say that hard assets do enhance the value and financeability of the purchase. And when you have a combination of hard assets and pretty good cash flows you definitely have found the winning combination.

Our final point pertains to both buyers and sellers and its all about disclosure. One writer referred to it as sellers who keep their dark sunglasses on! That of course refers to sellers keeping buyers in the dark and on the other side of the coin purchasers opting to stay in the dark without doing the right amount of due diligence. Can a deal be done in the dark? Absolutely ... will it be successful for both parties? Probably not!

There's an old saying that the best deal /negotiation is when both parties feel they didn't get all they wanted, and there's probably a lot of truth in that.

In Canada you can finance a business purchase via:

SBL Govt loans

Asset based lending

Bank term loans

Bridge loans

Cash flow loans - secured/unsecured

Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can help you with business acquisition financing.

by: sprokop

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