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Buying a business in Canada. Talk About Temptation! We’re talking about acquisition financing solutions purchasing an existing business that's already profitable, or, on the other hand a firm that is challenged and due for your turnaround. In both cases current owners might be motivated to sell, but for different reasons!



How do firms for sale get themselves in trouble? Often it's lack of funding and too much existing debt, as opposed to operating problems which are a whole different kettle of fish.


It might be an obvious solution to use your own funds in financing a business acquisition. Those funds typically come from personal savings and investments, or equity lines of credit on homes, etc. However, as a business purchase gets larger in size it is less probable you will use all or a large part of your personal savings; therefore a combination of some owner investment, as well as business financing and possible participation from the seller (seller financing ) will most likely be the route you choose to pursue. That combination certain allows the buyer to consider larger transactions.

AT 7 Park Avenue Financial we often receive queries around the concept of ' 100% Financing ' in financing the purchase of an existing business . In general, this does not exist in the Canadian marketplace ( we can't speak for our more risk-oriented friends in the U.S. ! ) Both sellers of companies, as well as commercial lenders, want to see the proverbial ' skin in the game ', demonstrating the purchaser's commitment to the transaction.



Some immediate issues to look into are arrangements with current lenders. This is often the scenario of working capital being extremely limited due to the current financing structure.



There are numerous ' valuation techniques ' in business acquisition loans when establishing the right price for the business. If a business is already losing money and has poor or negative cash flows it's time to take a hard look at the assets. There is no perfect method for establishing the value of the business you are buying, and by the way, profits are not the same as cash!

A good valuation strategy is to spend the proper amount of time ' normalizing ' the financials of the business. That process allows you to take out or add in expenses not currently reflected in the business, as well as looking at how revenues are generated and recognized. Review both past sales and profits as well as your ability to estimate reasonable going forward projections. For larger transactions many firms turn to ' CBV's ' - Chartered business evaluators for valuation advice for the right price around the finance to purchase a business.



The good news about existing assets is there are numerous financing strategies to assist in finalizing a transaction with the right business acquisition loan.


These solutions include:



The Govt of Canada Guaranteed Small Business Loan (It finances assets and leaseholds and has a new maximum borrowing cap of $1,000,000.00



Sale Leasebacks - Equipment financing and leasebacks preserve cash and allow you to purchase new or used assets with minimum cash outflows - It is a solid way to match the useful life of assets with cash outflow



Asset Based Bridge Loans and Business Credit Lines - Leveraging the assets of a business allows the buyer to consider a commercial asset based lender to facilitate financing the transaction. Not only does this minimize the amount of funds you have to invest personally it allows you to capitalize on the true value of the business you are looking at ; those assets typically able to be leveraged include fixed assets, real estate, inventory, and receivables.


Seller Financing - At 7 Park Avenue Financial numerous we find that numerous new clients looking to  buy a business do not consider the vendor financing scenario. This is a very viable component of your financing package and the amount of the loan from the seller, as well as the terms, can vary significantly. Suffice to say that the seller finance component also reduces the amount you will have to finance, which is positive from both purchaser and business lender perspectives.

In many cases the seller will be more open to sharing very detailed and critical information on the business as the seller has a vested interest in closing the deal, as well as preserving the legacy and reputation of the business. Since the seller is not a commercial lender the terms and rate structure around the ' VTB ' are often more generous than could be obtained from banks or finance companies. It should be noted that traditional banks and finance firms will always insist on their financing security ranking ahead of the seller finance component! Nice try seller!!

It would be unusual for the seller component to be larger than what is financed through external commercial lenders but it still is sometimes a good portion of the final transaction.
We can assume that almost all sellers will want full disclosure from the buyer on credit history, business experience, future plans for the company, etc, given they have a vested interest, in you, their ' new partner ' for at least a period of time.



Naturally the quality of the assets is key, whether they are fixed ' hard' assets or the assets that represent working capital components - i.e. accounts receivable & inventories. Key point - book values don't tell the true value of the assets, and in some cases you might need to make an investment in new technology - i.e. computers/software, etc (Equipment Leasing is almost always the best way to acquire tech assets given their cash outflow flexibility)



Service companies that have few assets are always more challenging to finance given lack of hard assets.



While new owners will almost always be required to put some of their own cash into the business many financing solutions will also drive the minimum and maximum amount they will need to put up. Asset based lending strategies will often help minimize owner equity investment.



While Canadian chartered banks are a great source of financing for acquiring existing profitable businesses they are somewhat more than reluctant to finance firms with obvious financial challenges. Banks will almost always focus on a business plan, mgmt experience, the balance sheet and owner personal financial statements.

Most purchasers of an existing business will often experience difficulty in accessing total bank financing for the transaction. While your business plan and future cash flow projections might be impressive the banks have a total focus on ' assets ' and ' cash flow '. They will also place a large reliance on business experience in the industry in question and will be looking for borrowers to demonstrate good personal credit history combined with a reasonable net worth.

On certain transactions you may have to, or choose to, assume the debt of the existing company as part of the financing package. This typically is more advantageous to the seller than the owner for liability type reasons and should be reviewed carefully if this is a part of your strategy. Suffice to say current lenders must also approve the buyer for any assumption of debt.



While it is not a ' direct ' bank loan per se, many purchasers of small businesses should consider the Government of Canada Small Business Loan program. This program also works extremely well on franchises. While there are some minimal conditions around the loan program, administered by Industry Canada, the program offers good interest rates, flexible repayment, and minimal personal guarantees. All of those should be very attractive to the potential borrower.

Prospective purchasers should not forget that a business can be purchased, from an accounting and tax and legal perspective as a ' share sale ' or an ' asset sale '. Purchasing a company from a share sale perspective entails certain risks as you may be acquiring hidden liabilities. Also buying a business has certain legal fees and miscellaneous costs associated with your transaction. These should be included in your cash flow assumptions, and they might include expenses such as appraisals, legal fees, business advisory fees, etc.

TRANSACTION CLOSED! WHAT'S NEXT?

OPERATING THE BUSINESS EFFECTIVELY VIA THE RIGHT TAKEOVER FINANCING STRATEGIES

In the rush and stress to close an acquisition we find that many prospective purchaser don't give full consideration to the financing of ongoing day to day operations. While it is not impossible for a firm to be self-financing if its ' cash conversion cycle ' is less than thirty days it is certainly the most unlikely of circumstances. If your firm does not have a positive cash flow management can undertake numerous ways to refocus efficiencies - that might include improving days sales outstanding and focusing on better inventory turnover, and better payables management with the risk of alienating key suppliers.

That need for constant working capital and cash flow replenishment will often focus the business owner and financial manager to look at a business line of credit.

The business line of credit is the cornerstone of operational financing. These revolving facilities provide cash as you maintain your investment in accounts receivable and inventory. Naturally service based industries do not have to concern themselves over the inventory component on the balance sheets of many industrial companies.

SOLUTIONS FOR THE BUSINESS LINE OF CREDIT REQUIREMENT

Various subsets of asset based lending provide solution funding for ongoing day to day operations post the acquisition phase. These solutions include:

Asset Based Non-Bank Lines of Credit - These credit lines are based on all the collateral of the business and usually imply a larger amount of financial leverage. These borrowing facilities are usually a bridge to getting a company back to traditional bank financing and don't come with the often more severe covenants and ratio requirements required by our chartered banks.


Invoice Factoring / Confidential Receivable Financing - A/R financing strategies are probably the most popular cash flow solution in current times ; they allow a business to cash flow their sales immediately and assist in avoiding the waiting period to collect receivables which can easily run anywhere from 30-90 days - At 7 Park Avenue Financial we will often recommend Confidential Receivable Financing, allowing you to get all the benefits of factoring as well as being able to bill and collect your own invoices


Equipment Financing / Sale-Leaseback Equipment leasing and leaseback strategies minimize cash outflows for the purchase of new and used equipment, including technology finance requirements



Purchase Order Financing / Inventory Loans - P O Finance solutions allow your suppliers to be paid directly by the commercial lender for large orders and contracts that your firm might otherwise not be able to finance based on the current working capital structure. Inventory financing can be a standalone finance solution or combined with various a/r and working capital solutions such as factoring.


Financing Refundable Tax Credits - For firms in Canada that utilize the federal government SR&ED program companies can cash flow their refundable credits via a SRED loan, allowing the company to recoup valuable r&d capital through the programs refundable tax credits


Supplier Credit - Many purchasers neglect to investigate the potential of supplier financing which generates cash flow given that extended payment terms delay the outflow of cash


For purchasers and businesses not focusing on a larger transaction that might have the benefit of private equity, mezzanine financing, venture debt etc it is important to consider all financing options available. Various combinations of alternative finance and traditional Canadian bank lending must be investigated.

In any type of business purchasing leverage is the ultimate double-edged sword. A solid financing package will ensure you are not over-leveraged with debt while at the same time assuming you will have operating financing facilities in place. It is exceptionally difficult to recover from over leverage in any environment, especially when sales are declining.


The bottom line? When buying an existing profitable or challenged business have a strong understanding of your opening balance sheet and the proper mix of current assets and debt. Understand the value of your hard assets and ensure you have financing in place to cover working capital needs.


Looking for a loan to buy a business in Canada? Seek out and speak to a trusted, credible and experienced Canadian business financing advisor to assist you in the financing to buy an existing business.





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

Buying A Troubled ( Or Successful !) Company In Canada? Finance Strategy 101

Financing A Business Purchase In Canada - Acquisition Loans

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How To Purchase a Business With The Right Financing

Buying A Business ? Ways To Finance A Business Acquisition

Buying a business in Canada often provides a large opportunity for success. While many owners and financial managers may prefer the strategy of organic growth for sales/revenue and profit potential the attractiveness of not having to start a business cannot be discounted.


But financing the business purchase capital, i.e. putting your transaction together is another story. There are numerous options available to the entrepreneur/business person when seeking a business acquisition loan, In some cases your transaction may be a management buyout or the focus on financing a takeover.

Acquisition Finance Solutions

Ways You Can Finance The Purchase Of A Business

Bank loans (Secured and unsecured) - In some cases the actual cash flows of the business can be used to finance the entire business purchase. This can be augmented with either a fixed asset/equipment loan as well as a revolving business credit line.

The importance of financing ongoing operations post the acquisition can't be overemphasized. If new owners are unable to finance through their reserves then options such as a business operating line, a non bank business credit line, or simply a/r invoice financing should be considered. We recommend Confidential Receivable Financing as the optimum method of financing sales when traditional bank credit can't do the job.


Franchise loans - The booming franchise industry, which supports a huge part of the economy has niche finance programs available to acquire both 'new' and 'existing' franchises. Corporate stores owned by the franchisor can be financed, as well as existing franchisees that have chosen to sell.

Tip: Find out why they are selling. Financing the purchase of an existing business is very common in the world of franchise financing.


Asset based Loans - These ' ABL ' loans cover the financing of assets as well as cash flow needs, including the often required credit line. These loans are ' non bank ' in nature and often provide higher ' loan to value ' financing when typically required loan and debt ratios don't work. The asset based lender in effect becomes the equivalent of your senior lender, in the same manner as would Canadian chartered banks.

Asset based lenders certainly help when the transaction makes sense to have a higher leverage based on the quality and size of the asset base. Main asset categories are receivables, inventory, equipment and real estate.

Most business owners wish to maximize the leverage and therefore enhance their return on investment but many times don't consider the dangers of over leveraging when it comes to debt.

While traditional Canadian bank financing might be the obvious or ' go to ' choice for many buyers it should be no surprise that they place significant emphasis on personal guarantees, potential outside collateral, and are usually focus on firms with very strong cash flows, balance sheets, etc. Naturally the Canadian banks can offer the lowest interest rates but financing an acquisition might often be a challenge. Also it should be known that banks aren't proponents of 100% financing - they demand, and desire the proverbial ' skin in the game '!

Government Small Business Loans - aka the ' Canada Small Business Loan '. This is the quintessential small business loan in Canada, One great way to acquire a business if your business fits some basic criteria - i.e. financing required for equipment and leaseholds. Acquisition loan rates, as well as other terms and conditions, are very favourable under the Canadian ' SBL ' program, not to be confused with the U.S. equivalent, the ' SBA ' program from which the Canadian program was modelled.  Crown corporations also can potentially assist in your purchase .

While not necessarily a 'creative' strategy, Government guaranteed business loans have solid 'traditional' type rates, no penalty for prepayment options, terms and structures, as well as.. wait for it ... a very limited personal guarantee! Finally, some help from Ottawa, but we digress....

It comes as a surprise to many people that the government does not lend money directly under our Canadian small business financing program - instead it charters the banks to fund the deals under the bank's guidelines. The government provides a guarantee to the banks. Many clients of 7 Park Avenue Financial advise us they have seen the banks interpret those guidelines as they saw fitting.


We can’t over-emphasize the importance of ensuring you understand the financial position of the business you are looking to purchase/acquire. If the seller's motivation is not 100% clear in initial negotiations it may well become clearer when the financial position of the company is understood.

In some cases owners may be willing to provide a ' VTB ' - aka the vendor take back. They may often make or break the financing as long as the seller is willing to take a 2nd position to your financing, and, more importantly, that your lenders don't view the VTB as more ' debt '. Negotiations around the actual amount of the vendor take-back will often dramatically change the nature of the selling price - upward or downward. Seller financing, that vendor participation we are talking about is powerful because it gives you the leverage to minimize owner equity if there are challenges in that area, and sellers are often willing to participate in some creative structuring of the ' take back '.


It removes some of the challenges of conventional financing, and sellers are many times 'motivated' to get the transaction done. There is no real stated percentage of what a typical seller finance percentage might look like, it varies with respect to the circumstances around your transaction so don't forget also that 'seller financing' can be a key part of any successful transaction.


'Goodwill' is difficult to finance part of any transaction, and the easiest financings in business acquisition tend to be ' asset ' oriented, not ' share sale ' focused when you are looking for a loan to buy a business in Canada. That concept of ' goodwill ' is a key part of understanding business loan requirements and what is required to often cobble a transaction together with different types of finance. Buyers should understand that in many cases a ' cobbling together ' of sorts, i.e using multiple sources of financing will often make a transaction work successfully. That is where external expertise can be of great assistance.



Buying and financing that business purchase via a well thought out and executed finance strategy is a solid way to become a Canadian entrepreneur. Speak to a trusted, credible, and experienced Canadian business financing advisor to kick start your business purchase.





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.
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

Buying An Existing Company : Do You Know Enough About The Business Acquisition Loan

Looking For An Edge In Buying A Business?

OVERVIEW – Information on business acquisition loan options in Canada. Buying an existing company requires specific knowledge around financing and value . Here’s what you need to know

Buying an existing company is an attractive option for many business people/entrepreneurs. The right business acquisition loan and financing play a key role in the ultimate success when that decision is chosen. Let's dig in.

The reasons to choose the ' buy a business' strategy are obvious to most people: Circumstances around the purchase might make the purchase value of the business very attractive. Additionally most would agree it's easier to grow a business than build a business from scratch, thereby eliminating a lot of risk.

The downside? Solid businesses that are growing and profitable are rarely ' cheap', and also, if any business came with 'no risk’ that would be a rare thing. We've met many clients who have inherited numerous supplier/financial/employee issues that were not discovered in any due diligence process.

The price of the business you are looking to purchase will almost always come back to the valuation and what type of financing can help complete the transaction successfully. Careful review of the financial statements around asset quality is absolutely key. One example might be the quality of the accounts receivable which can often unveil other issues related to sales/inventory/service etc.

Other issues to look for in the financials are profit margins, sales history, expenses, and owner takeout. Knowing these numbers gives you significant leverage in making a final offer you are comfortable with, and one that is ' financeable'.

Not always, but on occasion it’s an advantage to have the seller of the business participate in the financing. How? Via the ' vtb ' (vendor take back) option. This eliminates the need for some of the financing you require.

Although it's technically possible to purchase a business without owner equity this generally is not how things work, and a commercial lender/bank will certainly prefer your financial participation in the deal. Many transactions completed also have the owner on occasion putting up some ' outside' collateral.

What type of information is needed to acquire and finance a business properly? The basics include a business plan, a breakdown of how the loan proceeds will be used, financial statements for the business, and a cash flow statement. Remember also that the business acquisition loan is often a ' term loan' and you will more likely also need a business line of credit.

Small transactions under 500k can often be completed under the Canadian Govt Small Business Loan program. It places emphasis on the assets and leaseholds of the business, and is not a cash or working capital loan.
If you’re focused on the benefits of buying a business 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 knowledge and that special ‘edge’ of expertise required to value and finance a business properly.



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 ACQUISTION LOAN 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