Date post: | 13-Apr-2017 |
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Business |
Upload: | bizsmart-select |
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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
BizSmart aims to help business owners of small and medium sized businesses to create value and scale their businesses through sound practical business support by providing insight, Clarity combined with a real determination to help you succeed.
You can access webinars and presentations like this and more besides through our SmartRoom service here
You can read the associated blog and listen to a live recording of this presentation by clicking here
You can read Ian’s profile here
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