Juggling Acquisition Finance Solutions? Financing A Business Purchase In Canada

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FOR AN ACQUISITION!

HOW TO FINANCE A BUSINESS ACQUISITION IN CANADA

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Financing & Cash flow are the biggest issues facing business today.

ARE YOU UNAWARE OR   DISSATISFIED WITH YOUR CURRENT  BUSINESS  FINANCING OPTIONS?

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EMAIL - sprokop@7parkavenuefinancial.com

7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

 

 

FINANCING TO BUY A BUSINESS IN CANADA

 

  

Financing a business purchase in Canada often has the business person juggling various acquisition finance solutions. Which solution makes sense, and how do you access that capital properly? Let's dig in.

  

HOW DO YOU FINANCE A BUSINESS ACQUISITION 

 

Although bank financing will typically be the most sought-after business financing solution to buy a business in Canada numerous other financing solutions can provide more or additional capital to purchase a business, It's about ensuring you have the right business lender and focusing on the right amount of business acquisition financing suitable for your acquisition needs.

Aligning your strategy with the right amount of financing helps ensure long-term success - the optimal capital structure for your purchase should become job #!

 

That main tranche of financing, known as the ' senior debt ' of the business will typically have the lower cost of financing while other components to your financing will have different costs and structures and risks. Owner equity in a purchase will often be in the 15-20% range.

 

ASSESSING YOUR BUSINESS PURCHASE FINANCING  NEEDS

 

The ability to properly arrange your financing to match the  needs of the business purchase will revolve around:

 

- ensuring that the business has enough, and proper post-acquisition financing in terms of working capital and business lines of credit that will allow sales to grow

- Financing new assets and technology or repairs required to  business assets - in some cases leasehold improvements might be required

- Many business acquisitions revolve around management buyout scenarios -

 

- Refinancing strategy to restructure existing debt and creditor obligations

 

 

WHAT TYPE OF BUSINESS FUNDING SUPPORTS YOUR VALUATION / PURCHASE PRICE OF THE TARGET COMPANY

 

When you buy a business and consider financing a takeover, it's all about a proper valuation and moving forward with a source or sources of financing and loan terms that make sense for your acquisition price after you have performed an appropriate amount of due diligence.

 

LOOKING TO SECURE FUNDING FOR YOUR BUSINESS PURCHASE

 

In determining business value there are a number of 'common sense ' considerations  around valuing the business purchase

 

Financial statements of the business, both from a historical and interim perspective should be reviewed from a viewpoint of sales revenue growth,  profit, and operating cash flow - Every industry has different dynamics around supply and demand, key competition and how the company behaves in the overall general economy. 

 

The ability to determine growth potential will often be a key factor in the final price determinant when the buyer considers a purchase.

 

Asset-intensive businesses are dramatically different than service-based businesses - In many cases assets should be valued, potentially with the use of a third-party appraiser when considering key assets such as equipment and technology. In the new economy, many business valuations focus on intangible assets around patents, intellectual property, and the ability to generate recurring revenues.

There are a number of standard business formulas around valuation, including projection of cash flows and profits, or in some cases comparing valuations with other companies in the same industry if that information is available.   Replacement costs must be factored into any valuation decision as it relates to depreciation, etc.

 

  

PLAN YOUR BUSINESS CAPITAL STRUCTURE IN ADVANCE   

 

Suffice it to say, but often forgotten by many in business acquisitions, it’s critical to start assessing financing solutions for a business purchase well in advance of when funds are needed. The analog we could also use is getting '  pre-qualified ' for a home mortgage, which then gives the buyer both security and negotiating power when it comes to price, or in our case, ' valuation.' That final financing structure will dramatically affect the future growth strategy of the business.

 

MANAGEMENT & BUSINESS EXPERIENCE ARE REQUIRED!

 

Management depth and experience is also critical to your financing in a business acquisition loan search. Your lender/lenders, whether that is a bank or a commercial finance firm / asset-based lender, will want to know the ability you can demonstrate to properly manage and run their business - with their focus on getting repaid!

 

That goes for both traditional and alternative sources of capital, as both are used to finance a company's purchase. Whether it's leveraged buyouts or a management buyout, your ability to demonstrate business expertise to banks or commercial finance firms in your industry is key.

 

  

DEBT AND EQUITY COMBINATION  

 

Without getting too technical on some higher-level business concepts and jargon around ' debt ratios '  and financing acquisition with debt it needs to be clear that you understand the capital structure and debt and equity. Those latter two points are of course your 2 sources of finance to properly execute your transaction. It's critical to demonstrate in your business plan and projections of cash flows that repayment of debt can be addressed properly.

 

SOURCES OF DEBT FINANCING FOR YOUR ACQUISITION

 

Debt financing in your acquisition deal will come from commercial sources such as banks and finance companies. In the case of banks, many smaller transactions can be financed under the Government Small Business Loan's auspices. Major changes to the program, including removing previous borrowing limits, make this option, aka, the 'SBL ' very attractive. The Canada Small Business Financing program is our Canadian version of the popular U.S. ' sba loan' with an attractive interest rate and repayment flexibility combined.

 

THE EQUITY FINANCING COMPONENT - YOUR DOWN PAYMENT/PERSONAL INVESTMENT IN YOUR TRANSACTION

 

The other side of debt in your transaction is equity. Family, Angel, and private investors will demand ' shares’, diluting your own ownership. This then becomes the difficult balance act of sourcing the right amount of debt and equity. Naturally, if your own investment into the firm, along with debt will cover the transaction no ' dilution' of your investment will be required. Entrepreneurs invest from their savings, retirement accounts, or other sources of personal investment.

 

  

ASSET SALE OR SHARE SALE?  

 

By the way, ' share sales' are difficult, if not impossible to finance given the bank or finance company has no way to liquidate or monetize their loans. Going public is of course a whole different story.

In some cases real estate might be a key component of your deal - typically real estate is held in another company under some holding company scenario.

 

FUTURE FINANCING NEEDS POST-ACQUISITION!

 

While many owners focus on closing the acquisition, they sometimes forget to focus on the newly acquired business's working capital and cash flow requirements. That’s a recipe for failure with a proper focus on cash reserves on an ongoing basis for day-to-day funding needs.

 

7 WAYS TO FINANCE A BUSINESS ACQUISITION AND SUCCESSFULLY BUY A BUSINESS IN CANADA

 

As we have said the senior lender is a key focus of your acquisition strategy.

 

Debt financing from acquisition financing lenders  can come from:

 

Canadian chartered banks - bank loan, term loans, operating lines of credit -

 

When considering a bank term loan for the acquisition the senior lender will typically take the first position on all the assets of the business - bank interest rates offer the lowest interest rates in Canada.

 

Banks tend to be the ' go-to' for many business people/entrepreneurs looking to purchase another company. Bank loan approval will focus on key financial metrics in the business such as sales revenues, profits,  and cash flows required to pay down financing and fund day-to-day operations

 

Banks also place significant emphasis on the financial background of the buyer, including areas such as net worth, personal credit history,  and business experience. In certain cases, the bank will ask for external collateral as well as personal guarantees.

 

A solid business plan will usually be required - 7 Park Avenue Financial prepares business plans for clients that meet and exceed bank and commercial lender requirements,

Every industry has its own operating dynamics and the bank lender will focus on general industry conditions.

Many business people often express concern about the complications and delays that might come from a bank term loan acquisition so buyers of a business should be prepared typically for a total time commitment of several months when it comes to bank financing/loan approval.

 

Government Loans

 

The Canada Small business loan program is offered by Canadian banks and credit unions and can be used to facilitate a business purchase for small transactions in the  500k -1 Million dollar range

 

The government allows a participating financial institution such as a bank or business-oriented credit union to help small businesses finance or acquire a business venture with a limited personal guarantee and a smaller personal equity investment. It is a great way to purchase an independent business such as an existing business such as a franchise.

 

The credit report of the owner plays a key role in credit approval on government loans. The federal government loan guarantee eliminates the need for raising capital as many smaller businesses can't access angel investors or approaching firms who only wish to make significant investments. The program also finances real estate as an alternative to commercial mortgages and secured loans from traditional lenders- Guarantees and safety measures for the banks are in place under the program

 

Asset-based lending/leveraged buyout-

 

Acquisition financing via an asset-based lender will typically be a combination of a term loan and a revolving loan tied to the business's assets  - The revolving loan will fund current assets such as inventories and accounts receivables. Typical term loan structures from the bank and asset-based lenders will carry a 5-year amortization with potential refinancing/renewal flexibility.

Interest rates will vary based on considerations such as your transaction's overall credit quality, type of financing needed, amount of financing and repayment terms structure, the appraised value of the asset base on the balance sheet, etc.

 

Equipment Financing -

 

Equipment financing is used by 80% of  North American companies purchasing assets - All types of assets and technology can be financed under capital leases and equipment loans where the lessee chooses to own the assets at end of the lease term - Companies also have the ability to enter into operating leases which is a better method of using assets versus owning them.

 

Acquiring business assets through lease financing preserves existing credit facilities and helps a business maintain cash reserves.

 

Term acquisition loans from Canada's crown corp. bank -  bdc offers acquisition funding solutions for the business transfer of  ownership financing - Talk to 7 Park Avenue Financial about bdc loan requirements

 

Mezzanine Financing -

 

Mezzanine finance is cash flow financing for firms that do not have the amount of business assets to secure additional financing. Cash flow loans have higher interest rates as they are unsecured loans.

 

 

  

Mezzaning finance soltuions are cash flow loans that rank behind senior debt - so they will come at a higher interest rate / financg cost - They can complenent the capital structure of a businss and the financing focues on the cash flow generation ability of the company, as cash flow loans are unsecured . 

SELLER FINANCING

Financing the purchase of an existing business might include a seller financing component via the target firm. The seller finance/vendor takeback part of your transactions reduces the amount of debt you are required to take on, and, if properly structured, is viewed positively by banks and commercial lenders as part of a loan to buy a business. A lot of creativity can go into a seller's note to help fund a final transaction.

 

KEY TAKEAWAYS -

 

Often business purchase transactions will include a combination of different types of funding to form the optimal debt structure.

Purchasing a business is often considered a better strategy than the start p process and often offers more opportunities and less risk with additional flexibility.

Collateral and cash flow play a key role   in securing the right amount of business purchase financing

Government business loans can be utilized to fund the purchase of  a business

 

CONCLUSION

 

Acquisition financing requires a combination of the right financing structure and a cost of financing that makes sense for your transaction.

 

As potential business owners weigh their financing options traditional financial institutions as well as alternative finance firms offer a number of financing solutions based on term loans and lines of credit. Criteria for credit approval will vary based on the type of acquisition financing the lender chose, as well as the overall structure required to complete the purchase.

 

Talk to the 7 Park Avenue Financial team for information on what structuring and criteria work best for your business purchase. The right combination of debt and equity will properly support your new venture.

 

If you're focused on putting the proper' fix' in place for a financing strategy in financing a business purchase and are looking for ways to properly finance a purchase of a business seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can help you ‘juggle ‘ those solutions into a successful business acquisition with financing advisor expertise you need.

 

  

FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK / MORE INFORMATION  

 

How do you finance a business purchase?

Acquisition debt financing used for buying an existing business / legal entity can come from a number of different lenders such as traditional financial institutions or alternative lenders as well as Government loans when trying to achieve the optimal financing structure - Seller financing for acquisition purposes can also be a component of the final finance structure but is less common in corporate mergers. Typical reasons to buy a business and gain control include market share and the ability to achieve economies of scale via the purchase of the target company.

 

Click here for the business finance track record of 7 Park Avenue Financial

Acquisition Finance - The Heart Of The Matter When It Comes To Mergers Acquisitions Financing In Canada

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All Aboard The Acquisition Finance Mergers Acquisitions Financing Train! 

 Avoiding The Canadian Tragedy Of Poorly Executed Acquisition Financing 

Acquisition finance in Canada.  Whether the business environment is turbulent or going smoothly savvy business owners and managers are always looking for successful mergers and acquisitions opportunities with another company that... you guessed it... requires financing. Let's dig in.

 

In Canada, both traditional bank loans and alternative financing solutions lend themselves to a business or merger opportunity, therefore posing the question - ' How is this opportunity to be financed to ensure success ' and the right financing structure of term debt and operating finance. Financing an acquisition involves specialized finance skills.

 

In small to medium-sized acquisitions a tremendous amount of creativity on a transaction can come from innovative methods of seller financing, thereby reducing the cost of capital in the acquisition. Any form of seller financing obviously lowers the amount of external debt - traditional or alternative, that you are forced to take on.

 

Large corporations utilize private equity firms as an example for large complex transactions as well as the funding of publicly traded firms, but those types of solutions are not available to the SME borrower who must perform due diligence with limited external assistance and must therefore address financing the balance sheet on their own.

 

Here's one common challenge, we see all the time is that the seller has serious tax ramifications depending on the type of sale that is in motion. Only two real types of sale exist by the way -  ' ASSET ' or ' SHARE '.   Share sales in Canada are typically very impossible to finance, in that private companies offer no real liquidity event for the financier.  Naturally with public companies that’s a bit of a different story. The seller, unfortunately, is usually very ' tax conscious ' on the outcome of the deal, which many times makes the going difficult to close successfully and properly.

 

We point out also that when a motivated seller is open to some sort of Vendor Take Back scenario that also can become a potentially good source of income for the seller based on the interest charged on the VTB.

 

Smaller transactions in Canada require a commitment from the purchaser in the form of some sort of buyer equity, down payment, etc. Anywhere in the range of 10- 50% is required... and that's quite a range!  Business owners who have to invest their own capital in a deal source those funds from personal funds, savings, investments, etc.

 

Less money down on any deal is the ultimate double-edged sword on any acquisition finance deal. Leverage works for and against you, either propelling greater return on investment or significantly higher risk of failure based on too much debt - or the wrong debt.

 

Talk about a real double-edged sword! We point out also that lenders and other investors you may have lined up are generally ' impressed ' with an owner’s equity commitment to any deal. To paraphrase in the language of the people - you've got SKIN IN THE GAME! The vast majority of acquisitions in Canada typically come with a combination of debt, equity/ seller finance and cash flow finance combinations.

 

While many clients we talk to in the Small business and SME sector think they can approach ' VC's'  and Private Equity groups for assistance they rarely can meet the rigorous demands of those two types of external finance. Suffice to say you'll be giving up significant equity also, which in general is highly undesirable at a point when you haven’t realized the true financial benefits and returns of a good merger or acquisition over the long term.

 

In the small and SME sectors of business in Canada, a great way to finance a business purchase is the government Small Business Loan - aka the ' SBL '.This is the ' all Canadian version of U.S. 'SBA ' loans.  It offers tremendously attractive terms relative to what you are trying to accomplish and allows you to retain tremendous upside re your projected financial performance.

 

Two final very typical ways to accomplish financing acquisitions are to consider traditional bank financing and ABL (Asset-based lending). If you can meet some basic cash flow coverage and debt to equity ratios you're a solid potential candidate for well-priced acquisition finance with excellent and competitive interest rates in today's low-interest-rate environment.  Asset-based lenders will throw those ratios, generally speaking, out the window and simply focus on the assets you're acquiring and how they can be margined via term or operating solutions.

 

Avoid the tragedy of poorly executed business acquisition financing options when contemplating a merger or acquisition in the world of corporate finance. Strive for a good grasp of acquisition financing basics, which can be sought via your accountant, lawyer, or a trusted, credible and respected Canadian business financing advisor with a track record.

 

 

7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !



7 Park Avenue Financial provides value-added financing consultation for small and medium-sized businesses in the areas of cash flow, working capital, and debt financing.



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 100 Million $ of financing for Canadian corporations.

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR

Stan has had a successful career with some of the world’s largest and most successful corporations. He is an experienced

business financing consultant

.

Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.


Stan has over 40 years of business and financing experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in-depth, hands-on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.


Click here for the business finance track record of 7 Park Avenue Financial







Stan Prokop
7 Park Avenue Financial/Copyright/2020

Purchasing A Company? Buying A Business In Canada Without Overpaying With These Tools!

 




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Quality Decision Making When Financing And Buying  A business In Canada  

 

How To Not Overpay When Purchasing Company Buying Business Acquisition Finance

 

Purchasing a business in Canada, along with financing it always makes more sense when you feel you have paid the right price for an existing business purchase. One of the biggest business news stories in the world in the last couple of days was the discovery, apparently, that one of the largest technology firms in the world had (massively) overpaid for the business.

 

HOW CAN YOU ENSURE THE RIGHT PURCHASE  PRICE WITHOUT TAKING ON UNDUE RISK

 

  Accusations from both sides, surprisingly, abound. And much of those accusations are pointed at the legal and accounting firms that helped with the transaction. And we have met our share of clients who are struggling and wrestling with the financing they need based on having purchased a company at the wrong price, thereby incurring a lot of debt in the process... unnecessary debt! In some cases, the valuation of intellectual property of some sort might be the challenge.

 

As we can imagine, it's safe to say the  ' financial fur ' is flying! How then can Canadian business owners and financial managers protect themselves from these types of valuation mistakes when buying a business? Especially when they don't have access to all those high priced lawyers, accountants and valuation consultants. Those legal , tax and accounting issues around a business acqusition are important and many business owners don't have the expertise and resources in these key areas.

 

USING COMMON SENSE BASIC FINANCIAL TOOLS TO EVALUATE THE ACQUISITION

 

What to look for in financial statements when buying a business? The reality is that there are a number of common-sense financial tools that you can in fact use when buying a business and arranging acquisition finance.  And they come at almost no cost! It's all about examining some very basic relationships around how a company operates, and these techniques could save you thousands/ millions.

 

TAKE A STRONG LOOK AT THE RECEIVABLES TO SALES RATIO

 

A large part of the financing you need to purchase a business revolves around the relationship of accounts receivable and inventory to sales. When you learn to interpret these properly you are well ahead of the game, and hopefully, your valuation and financing will make a lot more sense.

 

When you have a strong handle on the size of A/R and inventory to sales the financing you may need to finance the acquisition will simply make a lot more sense.

 

Let's take a look at A/R first. Most business owners know that they can measure the general health and quality of their receivables via a calculation known as DSO - Days sales outstanding. This measurement will basically tell you two things - the quality of credit that you are extending to clients and the difficulty or mismanagement that you are experiencing in collecting that sale. Pretty important stuff from a basic calculation, and as far as we have read that’s one of the key issues in that breaking news story we talked about vis a vis out tech giant’s acquisition.

 

ARE INVENTORY TURNS MOVING IN THE RIGHT DIRECTION

 

Taking a hard look at the inventory situation simply allows you to determine if inventory is in fact being moved out of your current assets into the sales and receivables accounts.

How does the business acquirer then use this information to get a strong handle on sales, collections and inventory management? It's a lot simpler than you think, and the reality is that you can even use this simple calculation to monitor your own management effectiveness. Simply construct a basic chart that shows over any specific period of time your sales, A/R and inventory amounts. Monitor and analyze the relationships of these balances.

 

EXAMPLE OF THE A/R TO SALES RATIO

 

Example? No problem. Let's say sales go up 17% and you notice that A/R has now gone up 35%... with inventory going down by 5%. Is this bad, good, or who cares? The reality is that when you spend some time and also track the data you will see that in certain cases the numbers are out of whack, thereby identifying potential problems in A/R and inventory valuation.

 

It's up to you as the buyer to ask the right questions then. It's all about due diligence!

 

In the case of our recent major news story, the accusation seems to revolve around exactly the example we have provided - i.e. the cash conversion cycle slowing down because of sales behaviour as it relates to A/R and inventory.

 

Is our calculation the be-all and end all? Definitely not, but it also seems like it could have worked quite well for our Tech giants analysis team, as that seems to have been the problem.

 

Finally, all sorts of other issues need to be looked at also, they might include revenue recognition, expenses, accounting policy changes... and on it goes.

 

CONCLUSION

 

Entrepreneurs and current business owners look to buying an existing business for many reasons, one of which is simply that there is a general perception that it entails more risk than starting a business from the startup stage. The ability to acquire a business that is generating revenues and acceptable profits is a temptation for many business people. We looked at the a/r to sales ratio as one example of evaluating a business - you also want to make sure that those same customer generating sales revenue will keep buying after the business transition.

 

Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in acquisition finance if your goal is to buy a business in the SME sector of Canada - small business acquisitions done right!

 

7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !



7 Park Avenue Financial provides value-added financing consultation for small and medium-sized businesses in the areas of cash flow, working capital, and debt financing.



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 100 Million $ of financing for Canadian corporations.

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR

Stan has had a successful career with some of the world’s largest and most successful corporations. He is an experienced

business financing consultant

.

Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.


Stan has over 40 years of business and financing experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in-depth, hands-on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.


Click here for the business finance track record of 7 Park Avenue Financial







Stan Prokop
7 Park Avenue Financial/Copyright/2020

How To Achieve Acquisition Financing Successfully In Canada

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How To Finance A Business Acquisition in Canada

While the terms m&a financing and capital acquisitions conjures up visions of having to be a Bay Street / Wall Street heavyweight when it comes to sophisticated financial knowledge the reality is that financing to buy a business in the small to medium-sized sector of the Canadian business landscape actually requires a healthy element of ' do it yourself ' when it comes to acquisitions of competitors, synergistic companies, etc. The proper source of financing may often mean a number of appropriate solutions must be analyzed and investigated.

Companies consider financing a business acquisition because they want to increase revenues non organically or in some cases penetrate new geographical markets. So the right capital to fund a purchase and then operate the business is key.


Very few business owners can complete an all-cash deal, even in a good economic environment, much less a pandemic! Therefore financing buying a business with the proper and right type of debt allows you to not give up equity - that equity often called the most expensive form of financing. So if you have a good target company with understandable profit, sales and cash flow generation ability acquisition financing through borrowing is a recommended strategy.


Don't however underemphasize the importance of a solid external team to assist you with the expertise you need. Let's examine some solid ' need to know ' info that will help the Canadian business owner and financial manager address any acquisition successfully.

The goal of your purchase from a finance viewpoint is to ensure you have what is known as a ' capital structure ' in place that allows for a smooth takeover and continued growth of your target company. So from a business finance viewpoint, you want to focus on the right mix of debt and equity in the final structure that allows a firm to both operate and grow. The ' cobbling together ' of that right mix of finance leads to successful business acquisitions. In some cases you are integrating a business into the new business, which is even more of a challenge.

The value you are placing on the target acquisition is critical. It's that buying price that ensures you are paying for true value and worth. There are many different measures relating to a final valuation and financing an acquisition - typically revolving around sales, earnings, levels of depreciation, and a final calculation of what valuators call 'normalization' of the current earnings. This ' normalization process' takes out any expenses that won't incur in the future again, therefore providing a true ' earning power '.

Typical Acquisition Finance Structure / Financing The Purchase Of An Existing Business

Those measures of valuation we described are typically calculated as ' multiples' of the valuation points in question . Note that multiples vary in each industry allowing the purchaser to make an 'apples to apples' comparison of what he or she is buying. For example a company in a certain industry's sale price might be expressed as a ' 5 times multiple ' of current earnings before items such as depreciation which is a non-cash expense.

Business Acquisition Loans In Canada / Types Of Business Acquisition Lenders

A sample capital structure for financing acquisitions might look as follows:

Senior Lender
Selling Financing component
Cash Flow Loan
Owner equity component

As a buyer you need to determine what the potential earning power and sales revenues might be in future years, therefore allowing you to arrive at that ' multiple ' we have discussed. It is important to understand that lenders will always look very carefully at the ratio of debt and seller financing and owner equity to ensure they are in line with lender requirements.


Naturally the more a borrower puts in the less he or she has to borrow, which underwriters view as a buyer's commitment, or, in the language of the people 'skin in the game'!

The debt you incur in a transaction is usually a combination of senior debt which covers the main assets of the business and typically will include operating facilities for accounts receivable and inventory that arise out of future sales.

Today many business people consider asset-based lending, also known as asset-backed financing as a solid alternative to traditional Canadian chartered bank financing. By lending aggressively against equipment, receivables, inventory and real estate a transaction can often be completed to the approval of the purchaser.

Subsets of asset-based lending such as accounts receivable finance and inventory loans are key solutions to a final lending mix. The right a/r finance and inventory finance will ensure you have a handle on your ' cash conversion cycle ', namely the amount of time it takes a dollar to flow through your business, and we can assure you that timeline varies within different industries.



Revolving inventory loans, based on the value of the inventory, provide the cash to pay your suppliers. It takes time to convert the inventory into sales, use the value of this asset to help speed the process. Available in conjunction with accounts receivable financing or as a standalone retail inventory loan.




In some cases, even in a management buyout scenario a bank or commercial finance firm will consider a leveraged buyout, essentially used the assets of the target company as security for a loan/loan. Naturally, in these cases, assets must be strong, and there should be solid evidence of historical cash flow to support the much higher than usual leverage ratios.


Financing from a senior lender, either a bank or a commercial alternative finance firm, will bring you, the purchaser, into the world of ratios, covenants, and personal guarantees. A shorter-term loan will be less restrictive in nature. Lenders will typically investigate personal credit history and credit scores of the buyer to help them feel owners run their personal financial lives in a reasonable fashion.

At 7 Park Avenue Financial, we will always tend to investigate the ability to identify ' seller financing ' as a part of the acquisition finance strategy. The strategy can often make or break a deal, and is typically viewed positively by lenders. It is simply the sellers agreement to e apid a percentage of the acquisition price at a future point in time. The bottom line? Less borrowing is required. Structures of the seller finance, also known as ' VTB ' or vendor take-back can vary but often are in the 10-20% range and have various forms of creativity around payment terms. You might also hear this term is called ' earn out '. Three different ways to say the same thing!

There might be conditions tied to the earn-out, so in most cases a lower rate of interest that current market lending rates. It is the epitome of a ' motivated seller '. In many of the transactions we see at 7 Park Avenue Financial seller owner and or management stays on for an agreed upon amount of time to ensure a smooth transition.




The amount of proper financing that you can generate, internally and externally (mostly externally!) will ultimately play a large part in the size of the company with whom you might be acquiring, or merging. Here is where valuations come into play and anywhere from 30 - 50% of the final price that you agree on might in fact have to represent a cash type scenario.

In some cases there is a shortage of the total term loan to get a transaction approved and closed, so some for of ' mezzanine financing ' will have to be considered. That financing will cover the gap created between borrowing power, equity, and the sale price. Mezzanine financing is often unsecured, relying solely on future cash flow generation, so interest rates on cash flow loans are more expensive, but, again, similar to seller financing, can make or break a deal.

For smaller transactions in Canada many companies consider the Government of Canada Small Business Loan program as one of the methods of financing acquisitions.



Naturally there are a thousand stories in the naked city, as many firms are acquired simply for the reason that they are not profitable for the current ownership. This does bring up a very key point though, which is that if you are looking at acquiring a firm that is in trouble, losing money, losing market share/sales etc then in fact a lot less cash is required for the transaction. However at that point you'll obviously have other challenges to address.


If there is a solid piece of advice we can give to the Canadian business owner and financial manager it’s to start a financing strategy around your acquisition early on. That final capitalization of the proper amount of debt and equity is critical.


When contemplating bank financing for business acquisition financing in Canada a solid, realistic and succinct business plan is required. We see many plans from clients that are far less than ' succinct ' and therefore raise more questions than answers.


So what does one in fact have to demonstrate to the bank? A good start is how your firm will operate the business - so a good examination of the financials and any key issues around the seasonality of sales and cash flows, customer concentration, production, and credit terms are key.


If the business you are acquiring does in fact have challenges it's clearly a good time to demonstrate how you will implement controls and changes around those challenges.

At 7 Park Avenue Financial our due diligence process spends a good amount of time on assuming proper levels of sales and cash flow, often in conjunction with a business plan we prepare to support your transaction. Spending valuable time on structuring financing your an acquisition will lead to optimal performance going forward. The right amount of flexibility in your finance may be well required down the road.


Spend a lot of time considering the amount of leverage you will ultimately have when acquisitions are completed. It's tempting, of course, to become highly leverage but this is the classic double-edged sword of business financing, and don’t think that high leverage will guarantee higher returns to shareholders, as that debt you are now carrying can, in fact, become a day to day nightmare down the road if not managed or financed properly.


Business acquisition financing in Canada is about finding a solid opportunity, analyzing your transaction carefully, and closing with the best financing possible based on your industry profile of debt and overall capitalization. Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with acquisitions that make sense- financially!





7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !



7 Park Avenue Financial provides value-added financing consultation for small and medium-sized businesses in the areas of cash flow, working capital, and debt financing.



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 100 Million $ of financing for Canadian corporations.

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR

Stan has had a successful career with some of the world’s largest and most successful corporations. He is an experienced

business financing consultant

.

Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.


Stan has over 40 years of business and financing experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in-depth, hands-on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.





Stan Prokop
7 Park Avenue Financial/Copyright/2020

Do You Know How To Raise Cash For Financing A Business Purchase Acquisition?

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Hitting a Bull’s Eye In Canadian business acquisition financing!


Information on raising cash and debt financing for your business purchase acquisition in Canada

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, etc

You 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 growth

In 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.

7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8


Direct Line = 416 319 5769

Office = 905 829 2653

Email = sprokop@7parkavenuefinancial.com


Click here for 7 PARK AVENUE FINANCIAL
http://www.7parkavenuefinancial.com


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 100 Million $ of financing for Canadian corporations .



' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.

Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.

Stan Prokop

Business Purchase Decisions Come With Acquisition Finance Needs

Looking To Cash In On Buying A Business ?

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OVERVIEW – Information on acquisition finance solutions and challenges revolving around the business purchase decision

Business purchase decisions. Knock Knock - Who's There?

Opportunity has arrived! The ability to control or buy a business requires though, acquisition finance funding. Buying a business with the right financing in place helps guarantee the success that comes with sales and profit growth, and businesses in the SME segment of the economy rarely have all the ' cash ' they need to buy a company . The solutions? Let's dig in.

Clients we meet have varied reasons to buy a business. In some cases it might simply be the purchase of an existing franchise - rightfully or wrongfully some consider that decision as ' buying a job '. We'll let the pundits weigh in on that argument.

In other cases it allows the owner to speed up growth plans, expand into the U.S. or internationally, or to have the ability to capitalize on special technologies. All of those translate into the need to have a ' plan' to show that financing will allow those sales and profits.

One myth of acquisition finance is that 100% financing is available to purchasers of a business. That is very, very rarely the case. Another myth is that business purchases are geared towards specific industries, when in fact any business can be acquired. In the SME sector it is particularly hard to finance the purchase of a service business as there are rarely assets to support the transaction.

In numerous cases the type of financing you need to buy a business might simply be a temporary ' bridge ' solution to a longer term ' full time ' finance solution. That could be termed ' transition' financing.

Here it's important to ' button hole ' the types of financing you will need for your acquisition. That comes in various forms:

Cash flow term loans

Asset financing

Working Capital


Other areas to be considered include the amount of debt that is already in the company that you are looking to acquire. In many cases this debt or other facilities will need to be ' taken out' or reworked in some manner. Many transaction we see have some form of ' seller finance' involved, having the owner participate in the financing by taking some form of a ' note'.

The actual financial solutions that will allow you to complete proper financing include:

Asset based loans
Bank Term Loans
Government Guaranteed Loans
Unsecured cash flow loans
Non bank asset based lines of credit
A/R and Inventory Financing
Sale leasebacks of unencumbered assets
Commercial mortgages

If you're looking to ' cash in' on a business purchase opportunity 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 the right mix of financing to accomplish your goals.







Stan Prokop
7 Park Avenue Financial :

http://www.7parkavenuefinancial.com
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 100 Million $ of financing for Canadian corporations . Info /Contact :

7 PARK AVENUE FINANCIAL = CANADIAN BUSINESS PURCHASE FINANCING EXPERTISE

7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Office = 905 829 2653



Email = sprokop@7parkavenuefinancial.com

' Canadian Business Financing With The Intelligent Use Of Experience '


ABOUT THE AUTHOR
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.

Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.






Stan Prokop

Juggling Acquisition Finance Solutions : Financing A Business Purchase In Canada

Fixing Your Business Acquisition Financing Challenge


OVERVIEW – Information on financing a business purchase in Canada . What are the key issues in SME acquisition finance for the owner/entrepreneur . What solutions are in fact available?



Financing a business purchase in Canada often has the business person juggling

various acquisition finance solutions. Which solution makes sense and how do you access that capital properly? Let's dig in.

At the end of the day it's all about a proper valuation and moving forward with a source, or sources of financing that make sense for your transaction.

Suffice to say, but often forgotten by many, it’s critical to start assessing financing solutions for a business purchase well in advance of when funds are needed. The analog we could also use is one of getting ' pre qualified ' for a home mortgage, which then gives the buyer both security and negotiating power when it comes to price, or in our case ' valuation' .

Management depth and experience is also critical to your financing. Your lender/lenders, whether that is a bank or a commercial finance firm, will want to know the ability you can demonstrate to properly manage and run their business - with their focus on getting repaid! That goes for both traditional and alternative sources of capital, as both of those are used to finance the purchase of a company.

Without getting to technical on some higher level business concepts and jargon it needs to be clear that you understand capital structure and debt and equity. Those later two points are of course your 2 sources of finance to properly execute your transaction.

Debt financing will come from commercial sources such as banks and finance companies. In the case of banks many smaller transactions can be financed under the auspices of the Government Small Business Loan. Major changes to the program, including removal of previous borrowing limits make this option, aka, the 'SBL ' very attractive.

The other side of debt in your transaction is equity. Family, Angel, and private investors, will demand ' shares’, diluting your own ownership. This then becomes the difficult balance act of sourcing the right amount of debt and equity. Naturally if your own investment into the firm, along with debt will cover the transaction no ' dilution' of your investment will be required.

By the way, ' share sales' are difficult, if not impossible to finance given the bank or finance company has no way to liquidate or monetize their loans. Going public is of course a whole different story.

While many owners focus on closing the acquisition they sometimes forget to focus on the working capital and cash flow requirements of the newly acquired business. That’s a recipe for failure.

Debt financing for a business acquisition can come from:

Canadian chartered banks - term loans, operating lines of credit

Asset based lending

Equipment financing

Term acquisition loans from Canada's crown corp. bank

Equipment financing

Mezzanine Finance

Receivable /inventory monetization...


If you're focused on putting the proper' fix' in place for financing a business purchase seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can help you ‘juggle ‘ those solutions into a successful business acquisition.




Stan Prokop - 7 Park Avenue Financial :

http://www.7parkavenuefinancial.com

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 Finance Acquisition Expertise





Have A Question /Comment On Our Blog Or Canadian Business Financing Alternatives ?

CONTACT:

7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8


Direct Line = 416 319 5769


Office = 905 829 2653



Email = sprokop@7parkavenuefinancial.com





' Canadian Business Financing with the intelligent use of experience '

Stan Prokop