When financing a business purchase acquisition it kind of comes, fortunately or otherwise, to the fact that ' size counts '! . So the cash you need will directly relate to the size of the business you are financing, as well as the asset quality. Naturally how the company you are purchasing and raising cash for is doing play a key element, as often less cash is required and the focus is on financing remaining assets.
So a solid rule of thumb to keep in mind is simply that the amount of cash and ' finance power ' you need is very directly related to your targets situation on profitability. In other words a lot less real cash is required if a company is not profitable or barely breaking even. That certainly makes the job easier, right?In talking to clients about financing a business purchase we often feel they are focusing solely on the purchase, and not on the on going capital and cash flow needs of your newly acquired business.
We also have to consider the fact that raising cash for a business might often be more feasible if you have a strategic partner or other equity investor. That unfortunately will dilute your equity position but might be realistically the best course of action. And it does certainly allow you to purchase and fund a business with less ' monetary' contribution to the deal.In the case of larger transactions Canadian business people might well look to a private equity partner in the deal.
Their assistance in helping you complete an equity investment, as well as their experience in any specific industry is of course a valuable consideration. And to sum up the whole issue of getting either a strategic or operating partner or private equity group we can simply say that often times this might well add credibility and realism to your offer in the eyes of the seller.Bank financing in Canada is available to finance business acquisitions. You or your Canadian business financing partner needs to address the following issues at this point:A concise overview of how you will run the business - i.e. management depth, experience, etcYou need to ensure the industry your business is in is ' in favor ' when it comes to a bank appetite.
Your business plan and projections have to be realistic relative to cash and working capital resources re operations and growthIn a perfect world - and we know it's not! You want to be in a position to demonstrate sales growth, profits, and a balance sheet that hopefully won't have a debt/ equity ratio of 3:1 as an example.
And your assets such as inventory and receivables should demonstrate borrowing power quality.Other ways to finance your business purchase include asset based lending, bridge loans, use of sale leasebacks, and even the government SBL loan if the business has under 5 Million in revenue.
Seek out and speak to a trusted, credible and experienced Canadian business financing advisor when it comes to a capital raise for a business purchase acquisition in Canada.