Business Acquisition Funding Options

Business Acquisition Funding Options
  • Opening Intro -

    You’ve made the decision to acquire your competitor or have decided to take over the operation of a key supplier.

    Such a move can have a tremendous impact on your bottom-line if it is carefully arranged.

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You have several funding options to consider when completing your business acquisition.

Fund It Yourself

One of the more popular ways to pay for an acquisition is out of the funds you hold. Money from your capital fund, business savings or a credit line can be used to finance your acquisition. If the deal is small enough, you may be able to conclude itl with a credit card.

Ideally, you’ll have sufficient cash on hand to make the purchase. If not, you might consider a combination of the methods mentioned to pay for the acquisition. For instance, you might put 20 percent down as credit and pay cash for the balance.

Lean on Your Partners

If you are in business for yourself, you may find your funding choices limited. However, if you have partners, one or more may be able to supply the funding. These individuals could craft a loan for your business and you would pay your partner back over time. Or, you might allow a partner to increase her share in your operation in exchange for funding.

Another option is to allow your employees to fund the acquisition. In exchange for supplying cash or forgoing a benefit, such as retirement funding, you could offer your people share in the company. Talk with your accountant about the ramifications of this option as well as its legality.

Ask the Seller to Fund It

Even with sufficient funds on hand, you may find that you simply do not want to tap your account for money. Cash on hand can help you through difficult times and you may experience some financial difficulties as you absorb the new business.

Another option is to ask the seller to fund your acquisition. Instead of approaching your bank for funding, you ask the seller to hold the note. You might consider a short-term loan of two or three years, allowing you to absorb the acquisition and grow your business. By the end of the loan term when the note becomes due, you could be in a better position to finance it with your bank.

Structure Your Deal

The faster you want to conclude the acquisition, the fewer your options. If possible, arrange the take over to occur as late in the business calendar that you can stomach, giving you time to structure your deal.

During that time, you can review your other supplier and vendor relationships. You may need to lean on your receivables to pay up or sell unneeded equipment to raise cash. Offering companies a discount for paying early can help your balance sheet too. You should also scrutinize the soon-to-be-acquired company’s books carefully, to ensure that you won’t be taking on a surprise liability.

Once your funding structure is in place, have your management team sign off on it. If you’re a sole proprietor, an accountant will be worth his fee to ensure that the deal is crafted wisely and executed smartly. You cannot easily walk away from a deal once it is done.

Acquisition Considerations

Acquiring a competitor can make it possible for you to enter a new market. It can also remove a thorn in your side, by effectively knocking out a key adversary. You need to perform due diligence before moving ahead with an acquisition, to verify that the company is a good match and and is a sound financial move. Time may be of the essence when making an acquisition, but it should never come at the expense of due diligence.

See AlsoRichmond Business Broker: Buy Your Competition

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