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

Goes without saying also that your ability to asses financing a business acquisition 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.

When it comes to financing a business either a bank or commercial lenders may in fact 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 favor.

Key considerations in purchasing an existing company include positive outlook on the industry, your ability to generate real profits from the business, and 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 just to manage the business better turns your transaction into a winning deal

How you pay for a company is integral in overall success. While making all cash offer may be appealing it to has the ability to 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.

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.

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 your to get a strong handle on the acquisition value . We have always recommended to our clients that they access several months of the sellers bank statements to allow for the understanding of cash inflow / outflow.

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)

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)

Yes, that ‘ time machine’ would be great – 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.