There are few more effective ways to grow your business than acquiring another.
A well-chosen acquisition can allow your firm to diversify more easily by buying a company in an adjacent industry, or it can increase your market share by taking over a direct rival.
Some may even be looking to buy an existing company as a fast-track means of entering the business world for the first time.
Despite all the positive outcomes a business purchase can provide though, many are still put off as they believe they simply can’t afford to fund an acquisition.
However, there are several deal structures available that can make financing a company purchase far more achievable than you might think.
You’re likely to be able to find business loan products offered by your bank. If you already own a business, they’re likely to look for strong cash flow management and a healthy target company to agree to releasing any funds to you, however.
Outside of banks, there are some specialist business loan providers you could also try. It pays to look around as interest rates can vary wildly.
Be aware also that some lenders may ask for a personal guarantee against any loans, meaning that you could lose high-value assets, such as your house, should your business become insolvent.
Selling a business can be difficult without expert help, so buyers can often find themselves in the driving seat when it comes to negotiations. Because of this, deferred payment options are a popular choice among buyers as they can spread out the cost of the purchase.
This is a great option if the seller is looking to retire but may not be an option if they’re looking to raise funds quickly for other projects.
By dealing directly with the seller, buyers can sometimes negotiate far more attractive interest rates than they would with a loan provider.
After making an initial down payment, a purchase earnout sees you paying a future fee that’s determined by the company’s performance.
This can be a shrewd acquisition structure for buyers that have doubts about how their target company may perform in the immediate future. If it does worse than expected, you pay less. Of course, the inverse is also true, and a wildly successful business can see you paying more than you might expect. These details should be negotiated before contracts are signed.
Do you remember writing IOU notes as a child? Promissory notes act in much the same way, though you’re unlikely to be able to fund an entire acquisition using one.
A decent-sized down payment may persuade a seller to accept one, however. Promissory notes are legally backed negotiable instruments, meaning that they can even be transferred to a different holder.
These are just a few of the acquisition structures available to interested buyers. There are several options with each suiting different scenarios.
However you decide to fund your business purchase though, you should ensure you have specialist help to guide you through the whole process.
Forbes Burton can help you to navigate the acquisition by avoiding major pitfalls, tax issues, and helping to negotiate on your behalf.
Find out more about their specialist acquisition service here.
