This presentation is going to take a look at the financing of a business purchase.

If you are selling a business it will give you a guide as to what and how buyers can fund the acquisition.

There is a link at the end of this deck to the associated blog and webinar recording.

How to

Buy or Sell a Business

Buying (or selling) a Business

Ian Priest ACIB, MIoD

This session is going to take a look at

the financing of a business purchase.

If you are selling a business it will

give you a guide as to what and how

buyers can fund the acquisition

If you are selling a business it will

give you a guide as to what and how

buyers can fund the acquisition

It can have a major impact on you and

you need to understand and be

prepared

The terms you agree will to a greater or lesser degree involve risk to you,

and to the seller

It’s a sliding scale and you both have to agree and understand where you are on that scale

Shares or Assets

As a seller the best place to be is selling shares

As a buyer the best place to be is buying assets

Buying shares you get the company and all its history. A VAT investigation 3 months after you purchase can look back over several years and the bill lands up with you!

Buying assets – you pay a fixed price for certain assets and accept certain liabilities

Experience

Before you even think about raising finance the first question is have you got the skills knowledge, experience, track record to be able to run the business successfully

Raising financeThe first area of funding is you /what can you bring to the table.Have you got savingsHave you got equity in property you can releaseHave you got friends / family that can help

You need a good stake – banks call it HURT money it needs to be at least a years salary if not more – sufficient so you are unlikely to throw the towel in easily because it “hurts” too much to loose that amount

How can the vendor help you fund the purchaseHow much of the purchase price has to be paid on day 1 and how much can be “deferred” and paid over 3-5 years?

What can you raise out of the business you are Buying

This is the bit that scares vendors – they are leaving money in as deferred and

seeing the assets of the company being pledged as security

Company assetsCash in the bank 100% available to fund the deal

Bricks and Mortar – 70% over 15-20 years

Plant and machinery – 30-50% on asset finance over 3-5 years

Debtors 80-90% of debtors under 90 days on a revolving basis

ProfitabilityYou may be able to borrow against future profitability – cash flow lendingA short term loan 3-4 years based on future cash generation – this needs provable sustainable income streams

forecastsLenders will want to see sensible / justifiable projections normally a 3 way integrated forecast of profit and loss, cash flow and balance sheet

This is a job for an accountant and they need to be stress tested

Due diligenceIn addition to any due diligence you may do the lenders will want DD from people they can rely onLegal – sale and purchase agreement / property title/ employment contracts / customer and supplier contracts / legal obligations / pending claims / patents and Intellectual property

Financial – robustness of forecasts / historic figures / HMRC records

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You can read the associated blog and listen to a live recording of this presentation by clicking here

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