Financing To Buy A Business Sources Of Finance | 7 Park Avenue Financial

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Financing To Buy A Business: Sources Of Finance Aren’t Hard To Find... If
Why Time Travel Would Really Help When You Buy A Business




 

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SOURCES OF FINANCE IN BUSINESS ACQUISITIONS

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Financing & Cash flow are the biggest issues facing business today.

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South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8

 

financing a business                           sources of financing a business

Financing to buy a business, we maintain, would be a lot easier with some help from the concept of time travel.  It is probably not going to happen, but the idea of ' move between different points in time using a time machine of sorts'  sure would help pinpoint any issues that come out during the owners/ financial managers search for the right sources of finance. Let's dig in.

 

DOES BUSINESS EXPERIENCE COUNT IN BUYING A BUSINESS

 

It goes without saying that your ability to assess financing options in business acquisition for a small business is greatly enhanced when you've got some business and experience in that industry. That isn’t always the case, though, and there are some great tools to alleviate that problem.

 

IS THERE A POSITIVE BIAS TO THE INDUSTRY

 

When it comes to financing basics for funding small businesses, either a bank or commercial lender may have an extreme positive (or negative) bias on that industry. For example, currently, ' franchising’ is fairly hot and seemingly gains momentum every day. A few years ago, for example, automotive sector transactions were very much out of favour when it came to sources of funds availability.

 

WHAT ARE KEY CONSIDERATIONS IN ACQUIRING  A COMPANY

 

Key considerations in purchasing an existing company include :

A positive outlook on the industry,

Your ability to generate real profits from the business,

Most importantly (we’re biased here!), the ability to ensure you understand the financial pitfalls and issues around the acquisition.

 

 

In some cases, your ability to manage the business better turns your transaction into a winning deal.

 

SHOULD YOU MAKE AN ALL-CASH OFFER OR CONSIDER FINANCING

 

How you pay for a company is integral to overall success. While making an all-cash offer via personal capital may be appealing, it too can backfire in some ways at certain points down the road. So balancing the right amount of debt and equity is a strong focus. In certain cases, your lender - i.e. a bank or commercial finance firm will want to see a minimum amount of ' new equity' in the deal. Taking on debt to raise equity should be avoided if possible.

 

SHARE SALE OR ASSET SALE

 

Remember also that sellers will focus on   ' share sales' of a business, which are difficult to finance because of the liquidity issues inherent in a private company in the SME Commercial sector. So an asset-based sale is much easier to validate, buy and finance.

 

HOW TO VALUE A BUSINESS

 

Valuation plays a key role in buying a business. The ability to access (and understand!  ) past and current income statements, balance sheets, and cash flow statements will allow you to get a strong handle on the acquisition value. We have always recommended that our clients access several months of the seller's bank statements to understand cash inflow/outflow.

 

Do you need a business plan and solid cash flow projections? The answer is a resounding yes, as that document will allow the commercial lender to understand you, the company, the industry, and the financial potential. 7 Park Avenue Financial business plans meet and exceed lender requirements.

 

WHAT ARE SOURCES OF BUSINESS FUNDING IN ACQUISITION FINANCE

 

Sources of finance in Canada, when looking for financing to buy a business include:

 

Canadian chartered banks

Commercial finance companies

Asset-based lenders

Government Crown Corp banking debt

The BIL program (Govt guaranteed loan)

Equipment lenders

Private equity firms (these pertain only to larger transactions)

 

 

DON'T FORGET SELLER FINANCING  

 

Using simple common sense investigate issues such as the ability to source a vendor take back on your deal, as well as spending a lot of time on client receivables ( quality and quantity)

 

DON'T WASTE TIME ON IMPOSSIBLE SOLUTIONS

 

Tired of trying to see if venture capital or angel investors is the right solution for your acquisition needs. The reality is that probably less than 1% of all businesses qualify for such equity funding. at such an early stage - and venture capitalists, of course demand a significant ownership position in your business. Keep in mind that business loans via debt solutions do not dilute ownership stake, as debt is always cheaper thane equity when assessing growth potential.

 

CONCLUSION

 

Yes, that ' time machine' would be great in financing a company,  but utilizing our tips we've provided will get you many of the insights you need to acquire and grow a company in Canada. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with the financing you need.

 

Click here for the business finance track record of 7 Park Avenue Financial





7 Park Avenue Financial/Copyright/2021/Rights Reserved

' Canadian Business Financing With The Intelligent Use Of Experience '

 STAN PROKOP
7 Park Avenue Financial/Copyright/2024

 

 

 

 

 

Stan Prokop is the founder of 7 Park Avenue Financial and a recognized expert on Canadian Business Financing. Since 2004 Stan has helped hundreds of small, medium and large organizations achieve the financing they need to survive and grow. He has decades of credit and lending experience working for firms such as Hewlett Packard / Cable & Wireless / Ashland Oil