Interested In Buying A Business?
OVERVIEW – Information on successful buyout financing in Canada. What strategies should you employ with acquisition finance firms to successfully complete your deal?
Searching for Buyout Financing in Canada? Along the way you'll need info and assistance from acquisition finance firms or other institutions such as banks. Is there some proven information and strategies the Canadian business owner or financial manager must use to be successful in acquiring or merging with another firm. There are of course, so let's dig in.
On many occasions we see that clients haven’t spent enough time on the overall ' financial nature ' of the business. By that in essence we mean an overview of the operating cycle of the business. The operating cycle? It's simply your ability to get a handle on the overall sales and seasonality cycle, the supplier and customer base, timing on how goods and services are delivered and the current overall financial structure of the business.
New funding that you require running the business must be part of the overall financial considerations. Even more simply speaking than that the lender or lenders want to know how they will be repaid. To demonstrate that you need a strong, clear sales and profit and cash flow projection that might well be part of your business plan or strong executive summary.
The ability to demonstrate how your new and existing debt will re repaid which is done by demonstrating that your new balance sheet has the right amount of debt and that you've got borrowing power.
Borrowing power is of course based on the assets of the new business - which typically is receivables, inventory, and fixed assets. Receivables when financed by a bank are typically margined at 75% borrowing power, and if you utilize an asset based lender your borrowing power typically increases to 90%. Inventory and fixed asset financing is determined by careful valuation of overall marketability of the assets based on the opinion of the bank or your asset based lender.
Other focuses of acquisition finance firms for buyout financing include management depth and experience, overall cash flow coverage and repayment ability, collateral asset quality, and the potential ability to grow sales and profits. No real mystery there!
Buyout financing works best when you have a solid handle on what's known as the capital structure of the new business. The easy way to focus on this is to have a strong sense of what capital is available from you the new owner, traditional of alternative lenders, and your suppliers/vendors. Using vendors as an example, just your ability to negotiate extended payment terms for an interim or permanent period is going to be a great source of cash flow.
Getting the right mix of short term and long term debt is also key. In a perfect world you want to have the right amount of debt, aka ' leverage’. A great rule of thumb? Simply that your overall cash flow can comfortably cover off your debt payments and that overall debt doesnt exceed your shareholder equity by a relationship of 2:1.
For companies in the SME sector we'll often see the overall capital structure is different than that of larger corporations - i.e. current assets and liability per cent ages tend to be higher - allowing you to monetize assets for cash flow and working capital as opposed to relying on shareholder equity, which is often much higher in larger firms.
Companies in the SME sector in Canada don't often have all the resources that the ' big boys ' have when it comes to buyout financing. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with acquisition finance.
CANADIAN BUSINESS BUYOUT FINANCING EXPERTISE
Stan Prokop - founder of 7 Park Avenue Financial –
http://www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
Info re: Canadian business financing & contact details :
BUYOUT FINANCING AND ACQUISITION FINANCE FIRMS
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Phone = 905 829 2653
Fax = 905 829 2653
Email = sprokop@7parkavenuefinancial.com
Stan Prokop
