YOU’RE LOOKING TO BUY A BUSINESS!
YOUR GUIDE TO BUYING AN EXISTING BUSINESS IN CANADA
You've arrived at the right address! Welcome to 7 Park Avenue Financial
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
Buying a company in Canada may be an easier process than you might think... if you're aware of certain financing and valuation pitfalls that many purchasers either don't know about or, worse, choose to ignore in a business acquisition. Let's dig in.
HERE ARE FINANCING SOLUTIONS TO BUY AN EXISTING BUSINESS
If you borrow from a bank, a commercial finance company, or even with some level of seller participation ( aka ' the vendor take back ' ), there are some solid ' top up ' financing options available.
They include :
Term loans
Equipment financing,
Cash flow loans - secured and unsecured,
Working capital term loan debt,
Asset-based credit lines,
Monetization of SR&ED research credits
The bottom line - there are numerous ways to finance the company you want to buy. It becomes a question of assessing the right finance options/options for your specific needs around the type of business and industry.
Some buyers will focus on the leverage buyout strategy around the business's assets - here's where ABL loans can make a lot of sense as your financing structure strategy.
CASH FLOW / ASSET TURNOVER / DEBT
While many prospective business purchasers focus on taking on debt or monetizing the business assets in question, they often overlook that a significant amount of cash flow can be generated by better managing company assets. You would be surprised at improving A/R turnover; turning inventory faster and managing payables better will improve cash flow.
WHY IS ASSET TURNOVER IMPORTANT
When buying a business, study ratios of DSO, Inventory turns, and a/p days outstanding are essentially some of the business's key assets and liabilities. They will give you a strong sense of where there is room for improvement. Overall this newfound cash flow will limit some of the ongoing working capital you need for business acquisitions. Due diligence on any new business is key to success over the long term.
VALUATION OF ASSETS
Valuing the fixed assets will also maximize financing potential, and this is typically done via the services of a third-party appraiser selected by yourself, or more commonly, the lender. You want to see the true market value of these assets and ensure financing will be easier to get to acquire new assets that might be needed.
IS A PERSONAL GUARANTEE REQUIRED
No issue in Canadian business financing could generate more discussion with your lender than the dreaded ' Personal Guarantee. ' While every situation will differ, it's safe to say these are negotiable to a certain extent if the overall optics of your purchase are positive.
THE VENDOR TAKE BACK CAN BE CRITICAL TO YOUR TRANSACTION
Purchaser and seller may well wish to consider a vendor take-back of some sorts. While sellers can often demand a higher purchase price in this area, buyers have the comfort of knowing they have secured some additional ' financing ' with someone who is very incented for you to succeed! Don't eliminate seller financing from your acquisition strategy.
LET 7 PARK AVENUE FINANCIAL HELP YOU WITH A LOAN PACKAGE
The absolute fundamentals of buying a small business or a medium-sized entity and arranging business purchase finance include having a solid business plan, good cash flow projections ( conservative is better!) and ensuring that in some manner, you as a buyer have some personal equity in the transaction. It's the proverbial ' skin in the game ' when you are looking to buy and operate a business.
When it comes to that cash flow, carefully consider realistic revenue expectations and your ability to collect client receivables promptly. Building in need for future asset purchases is critical also. In some cases, there might be a real estate component to your transaction, which is typically addressed separately via a holding company, etc.
At the opposite end of the ' asset ' spectrum, purchasers may have to address the issue of valuing and financing intangible assets that are being acquired. It's a good idea to talk to your accountant on accounting such intangibles as goodwill, and you may want to employ third-party valuation processed around any intangibles.
Both buyers and sellers can benefit from using an outside advisor when it comes to the business's actual valuation. Tax returns around asset vs. share financing, earn outs, goodwill, etc., can be complex. Over a period of time, accounting/legal/tax issues can become a challenge if not addressed early in the process.
CONSIDER A POTENTIAL GOVERNMENT GUARANTEED LOAN TO BUY AN EXISTING BUSINESS
It is safe to say that the amount borrowed to fund the purchase will often dictate different complexity levels in many cases. Many businesses in Canada under the 5 Million dollar range in annual revenue can actually be accomplished with the government ' SBL ' loan. Here though, the loan cap is $ 350,000.00, so that again dictates that in some cases, additional financing strategies on top of that loan might be required. In our experience, many franchises are well suited to purchase under that 350k cap. And by the way, the general terms and conditions of that loan are very competitive and attractive. Business owners should keep in mind that under the government program, revenues for the target company must be under 10 Million dollars.
CONCLUSION
Would a co-pilot help on accessing business credit for the business you want to buy? Consider seeking out and speaking to 7 Park Avenue Financial; a trusted, credible and experienced Canadian business financing advisor who can help you make sure that more complex financing issues easy to understand.. and accessible.
Click here for the business finance track record of 7 Park Avenue Financial
Stan Prokop
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