The Upside Of Financing A Business Valuation Well
OVERVIEW – Information on financing a business purchase in Canada . Business valuation factors and how you interpret and use them have a key role in buying and selling a company successfully
Financing a business purchase in Canada comes with one major requirement - needing to know certain aspects of business valuation and how some of key factors in that process will affect your ultimate success in buying or selling a business. Let's dig in.
Why would business owners / entrepreneurs take on more risk, in effect gamble on buying a business? Many of course feel that that route actually eliminates risk of financial loss if only for the reason they are buying an existing business. Knowing how to finance that purchase (if you're the buyer) or how to maximize benefits of final valuation are key. We'll look at some key issues here from the viewpoint of both the buyer and vendor.
There are some, let us call them ' soft factors ' in purchasing and financing a company if you're the buyer. Although lenders might not necessarily address these issues with you directly we can assure you they are looking at things like your management and industry experience , external economic conditions within your industry, and the potential finaceablity of your sale at a price you and a seller have agreed on.
Other miscellaneous issues (they might not be that miscellaneous) include some due diligence around premises and licensing issues, any environmental concerns, etc. If real estate is part of your transaction almost no traditional finance solutions can be brought to bear if there are environmental /contamination issues.
Naturally the method the seller and buyer have chosen to ' value ' the business affects the financing you need to consummate the deal. That number can vary differently if you have chosen one business valuation alternative over another. These methodologies are a classic bit of art and science and may include:
Return on investment required by the owner
Cash flow analysis (these must be realistic) Here you need to understand past and future working capital requirements
Book values of assets - In many cases either buyer or sell will want to have these appraised
Any business lender, whether it be a bank or a commercial or alternative lender will want to see some key documents around the purchase and sale. They include:
The actual sale agreement itself
Existing financing that is in place - e.g. bank security, leases, contracts, etc - These are typically verified by lenders by checking govt PPSA filings showing secured lenders and what collateral they claim
Up to date financial statements / tax filings
If you are buying a franchise you will of course need permission from the franchisor
In many business purchases a lot of adjustments happen after the sale. They might include which party collects the outstanding receivables, who keep cash on hand, value of inventory that is on hand at closing, and final payments due on leases, utilities, etc.
Whether you're the buyer or seller knowing how to sell or finance a business purchase is key - seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can assist you with your business valuation finance needs.
Stan Prokop - 7 Park Avenue Financial :
Business financing for Canadian Firms , specializing in working capital, cash flow, asset based financing , Equipment Leasing , franchise finance and Cdn. Tax Credit Finance . Founded 2004 - Completed in excess of 90 Million $ of financing for Canadian corporations . Info /Contact :
7 PARK AVENUE FINANCIAL = CANADIAN BUSINESS FINANCING & VALUATION FINANCING EXPERTISE
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CONTACT:
7 Park Avenue Financial
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Direct Line = 416 319 5769
Office = 905 829 2653
Email = sprokop@7parkavenuefinancial.com
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