Business acquisition financing in Canada needs a better storyboard. Buyout finance opportunities exist all the time in the Canadian business landscape .Certainly buying a business and either growing it or turning it around is an exhilarating experience. What works and what doesnt for the would be buyer/owner? Let’s dig in.

Proper acquisition finance should be done strategically – making sure the right tools and agendas are in place to make the new business work.

If you’re either an entrepreneur looking to buy a business or a current business owner looking for diversification and non organic growth that typically is driven by sales and profit motives. When you enhance the value of another business both revenues and profits will grow if managed properly.

Numerous clients come to us with what they feel are ‘ undervalued’ situations. Some of those can become overvalued if not dissected properly. Most businesses in the SME sector in Canada tend to be purchased or bought in a somewhat ‘ friendly ‘ negotiation. SME is rarely the hostile takeover environment.

A lot of the focus on your initial pricing and value of the business you are looking at will always come back to cash flow. That cash flow is going to come out of how you will mange the business relative to current assets (inventory and A/R) as well as the financing you need for current and future investment.

How then does the purchaser/buyer create that ‘ storyboard’ we’ve been talking about? It’s done by taking a close look at finance operations – that includes gross margins on sales, expenses, and the turnover of assets.

Business purchasers often go wrong when they don’t spend enough time on the required investment in new asset needed. That could be technology, plant equipment, vehicles, etc. All of those will require financing, which can typically be properly funded via equipment finance. The cash flow required to make those payments must be taken into account in your cash flow analysis of the acquisition.

Sales in most companies always comes back to a working capital requirement. This is the balance that comes from managing your payables and vendors as well as collecting receivables and purchasing inventory / goods.

Here’s a quick way to look at that. Let’s say a company has 100,000 dollars in current assets and 80,000 dollars in current liabilities. That business has a working capital position of 20,000 dollars. Bottom line? For every dollar of sales your business needs 20 cents of working capital. You need to project that out into your future sales growth. Keep your ‘ capital turnover cycle’ top of mind.

What are those key storyboard questions you should be asking yourself? They include:

What debt levels are in place or needed?

What amount of owner equity needs to be in the business at the time of purchase?

Are short term solvency issues a critical item? What type of financing can be put in place to solve those? They might include:

RECEIVABLE FINANCING
INVENTORY FINANCE
BANK OR NON BAN LINES OF COMMERCIAL CREDIT

Remember the maxim ‘ Growth penalizes Cash ‘ when you’re planning an acquisition for growth. That punishment can be brutal.

Methods of acquiring a business in Canada through finance include_

GOVERNMENT SBL LOANS
BRIDGE LOANS
ASSET BASED LINES OF CREDIT
BANK TERM LOANS

Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your buyout finance needs.